Lately, it has become fashionable to take pot-shots at Goldman Sachs, particularly its Whitehall opportunity fund platform. Criticised over the years for its performance and for focusing more on generating fees than creating value for investors, the Whitehall moniker has become industry shorthand for the wider problems facing private equity real estate. Out of fairness, however, it also should be noted when the bank and its Whitehall family of real estate funds chalk up a success.
One of those instances seems to have arrived in Europe with the initial public offering of GSW Immobilien, the largest private owner of residential property in Berlin with nearly 49,000 residential apartments. It was purchased in 2004 from the government of Berlin by Whitehall’s 2001 fund and Cerberus Capital Management.
Last Friday, seven years after the original outlay, the pair took GSW public on the Frankfurt and Berlin stock exchanges. The Financial Times remarked earlier this week that this was the first major IPO of a real estate company in Western Europe in several years, perhaps since Fortress Investment Group executed a partial exit of GAGFAH, another German residential property company, in 2006.
These days, taking anything public involves a leap of faith. Indeed, in recent weeks, several European IPOs of companies in different industries have either been jettisoned, postponed or have endured a rocky start to life on a stock exchange. Nevertheless, Whitehall and Cerberus went for it, and the overall investment appears to be heading towards a successful outcome.
According to those familiar with GSW, Whitehall and Cerberus floated 60 percent of their holding, retaining the remaining 40 percent. But here is the crucial figure: having originally invested around €400 million of equity to buy GSW, shareholder distributions between 2004 and 2009 amounted to €420 million, according to the IPO prospectus, meaning the firms got their money back. On top of that, the pre-IPO value of the 60 percent stake in GSW was €665 million based on the offering price of €19 per share, potentially making for a handsome profit.
Incidentally, the first day of trading last Friday saw shares rise to €21.50 at the close of play and have nudged up since then (albeit partly due to share trading when the equities were included on the EPRA Germany index as of Monday).
Observers of European real estate, however, will know that it has not been a smooth run for Whitehall and Cerberus to get to this point. They planned the IPO last year, but Greece’s flirtation with total ruin spooked global capital markets, so they held off listing their interests. Furthermore, there were few strategic buyers for the company either.
The investment seems to have been a success in terms of return as highlighted above, but it also seems a success on another measure. According to those that have studied the share register, there are some quality institutional investors in GSW, such as Fidelity Investments and Alliance Bernstein, and it is said that GIC, the sovereign wealth fund of Singapore, has a significant holding too.
This indicates GSW is viewed by long-term sophisticated capital as a pretty stable beast but with some upside potential, perhaps in rental increases and smaller bolt-on acquisitions of more residential properties in Berlin. The company, it is worth noting, might have been the largest private owner of Berlin residential property, but it only has a 2 percent market share, indicating there is great scope for consolidation.
More widely, the IPO also could do the rest of Europe a favour. It is early days, of course, but the floatation of GSW has at least instilled more confidence in the capital markets for those with quality companies to float. Who knows, after this we might begin to see more public market exits by opportunity funds, not just in Germany but elsewhere too.