Goldman Sachs rolls back the years

The days of foreign investors swooping on German state-owned housing corporations for billions of Euros are apparently over. Yet with debt markets seemingly frozen for large deals and the strategy of privatization and increasing rents open to question, the Goldman Sachs-sponsored Whitehall Funds may have put a dent in that theory.

Last month, the Whitehall Funds acquired a majority interest in LEG-Verkaufsverfahren from the German state of Nordrhein-Westfalen (North Rhine-Westphalia). According to the authorities, Whitehall is paying €787 million ($1.2 billion) in equity and assuming €2.6 billion of debt, giving the company an enterprise value of €3.4 billion.

With 93,000 apartments of varying quality, it is the kind of portfolio that foreign investors were acquiring with gusto before the credit crunch of last summer.

Firms such as Fortress Investment Group, The Blackstone Group, Morgan Stanley Real Estate, Deutsche Bank's RREEF, Pirelli Real Estate and Terra Firma – through its Deutsche Annington platform – have been among the most prevalent of purchasers in the recent past. The last significant portfolio acquired by Whitehall in Germany was the 2004 purchase of Berlin's Gemeinnützige Siedlungs und Wohnungsbaugesellschaft (GSW) from the city state. GSW has an extensive apartment inventory with more than 50,000 properties.

As PERE reported last year, international investors poured more than €20 billion into German residential property between 2004 and 2005 alone. However investors have been largely disappointed by a strategy dependent on privatizing homes quickly or rapidly increasing rents. Exits through the German public market have also been stymied owing to government regulations preventing residential companies becoming REITS.

Nordrhein-Westfalen said Whitehall had agreed to a “social charter” placing restrictions on strategies based on increasing rents or adding value. Goldman did not comment, however the deal will help diversify the firm's property portfolio in the country.

The deal also comes at a time when there are few large state–owned residential portfolios remaining. According to reports, Deutsche Annington and Zurich-based private equity real estate firm Corestate Capital were competing with Whitehall in the latter stages of the auction.