Toronto-based real assets firm Slate Asset Management is set to complete its largest-ever deal in Germany, purchasing a portfolio of 188 grocery-anchored retail properties for more than €1 billion from x+bricks Group.

The sale will be completed in two tranches over the coming months, subject to closing conditions and regulatory approvals, and comprises the entire discount grocery portfolio of the Frankfurt-based firm, which specializes in grocery-anchored real estate in Germany. In connection with the deal, x+bricks’ founder Sascha Wilhelm is reportedly selling his shareholding in the company, as he steps down.

The transaction comes as global real estate deal volumes have recorded a third consecutive quarter of decline. In Germany, just over $12 billion changed hands in Q2, down 59 percent year on year, according to MSCI’s Q2 2023 Global Capital Trends report.

Slate’s deal is set to become the largest whole-portfolio deal in Europe so far this year. In 2023 to date, only two known €1 billion-plus transactions have completed in the region, according to MSCI, and both were for partial interest stakes: Primonial REIM’s purchase of a stake in the real estate assets of healthcare business Icade Santé for €1.4 billion, and Brookfield’s acquisition of a stake in EduCo, the educational property platform of Swedish real estate company SBB, for €1.9 billion.

Co-founding partner Brady Welch tells PERE that Slate had been working on the transaction for more than a year. “We were prudent. We wanted to be a good fiduciary of other people’s capital and watch where the markets were. And so it did take its time, and once we were fully underwritten and comfortable [with] where the markets were and the pricing, then we were prepared to move forward, but it was a longer period of time.”

Welch observes that access to financing was not a problematic part of the process, however. “Lenders still like to finance this asset class because they understand it,” he says. “In a market where things are being repriced, we’re seeing growing rents and we’re seeing the ability to actually finance this with positive leverage. You can’t say that in all asset classes today.”

PERE understands Slate is executing the deal with capital from Slate European Essential Real Estate Income Fund, a core-plus vehicle launched in 2021. The strategy focuses on acquiring, owning and operating cash-yielding ‘daily needs’ retail real estate that provides everyday goods and services to end consumers. According to Welch, daily needs-based retail includes grocery, pharmacy, other healthcare services assets and affiliated warehouse and logistic assets. Globally, Slate’s platform of such assets amounts to approximately $5 billion in value.

The strategy is backed by a group of institutional investors led by New Zealand Superannuation Fund, which was the anchor investor behind Slate’s original push into essential real estate in Europe, as revealed by PERE in 2021.

“NZSF increased their equity with this transaction,” says Welch. “I think that demonstrates their support for the asset class and understanding [of] the defensive nature of the asset class.”

Slate first entered the German market in 2016, underwrote the market for three years before making its maiden investment, and had until now executed around 35 smaller-scale portfolio deals. “We are quite comfortable with the asset class and the competitors, and I think that’s what has made us comfortable to do this larger transaction,” says Welch.

Crediting the strength and maturity of the tenants in the portfolio – which include recognized and privately owned grocery brands such the Edeka Group, the REWE Group, Lidl and Aldi – Welch says Slate likes the stability of the grocery market in Germany. “When you take a look at how leases are structured in Germany, the majority – I would say almost 99 percent – of the leases are CPI linked, and so in an inflationary period, this real estate is somewhat mitigated by high inflation.”

In addition, Welch states that the assets are being purchased below market rents, which Slate aims to grow organically over time as capital is reinvested into the real estate.

Elsewhere in Europe, Slate owns real estate in the Nordics, and is actively looking at Benelux, the UK and Ireland, as well as additional opportunities in Germany. “Our pipeline is as strong as it has ever been,” says Welch. “There’s probably not a grocery deal that would happen without us getting a call.”