This old haus

For the first time, a German city has sold all of its public housing stock to a US investment firm. More could be on the way.

New York-based distressed specialist Fortress Investment Group purchased 48,000 apartments from the city of Dresden in Germany last month. It is the first time a German municipality has sold its entire portfolio of public housing to a foreign buyer.

The deal for the Woba Dresden GmbH portfolio, coming less than a year after Social Democrat Franz Müentefering infamous “locust” comment, is worth €1.7 billion ($2.1 billion), according to German press reports. Dresden was eager to sell the properties in an attempt to retire more than €700 million in municipal debt and buyers were equally eager to acquire them—Fortress outbid numerous competitors, including George Soros' Berlin-based Apellas group.

It's no secret that cash-strapped German cities, utilities and government groups are looking at putting their housing divisions up on the auction block to alleviate debt and clean up their balance sheets. And though there has already been significant activity in the country, industry watchers feel that there will be no dearth in opportunities for private property investment funds in the future.

“If you look at the [real estate] holdings of stateowned entities and corporations and the state of affairs and budgets of German municipalities, most of them at some point will have to sell,” says Geza Toth-Feher, a partner at law firm Paul, Hastings, Janofsky & Walker. “From that end—at having willing sellers—this is far from over.”

Toth-Feher also says the large US-based hedge funds with real estate arms, such as Fortress, Cerberus Capital Management and Oaktree Capital Management, will also continue to spur sales as they exit their investments.

“[They] create their own secondary market…they need to offload,” he says. “They turn around and sell to the people crowding behind them.”

While the Dresden deal was the first time a municipality divested itself of its public housing property, other groups in Germany have already sold off their own housing divisions. According to German news service Deutsche Welle, Berlin has sold more than 260,000 apartments, while Hamburg and Cologne are considering sales as well.

Other firms are looking into the German residential market. Fortress is reportedly mulling over additional deals and UK-based fund Puma Bradenburg has earmarked half of its capital for equity investments in the Berlin residential sector.