London-based Rockspring Property Investment Managers has been building on its already sizeable German platform by making a number of acquisitions in the market this year, while also taking advantage of strong investor interest to lighten up its German retail holdings by selling some non-core assets.
The company said last week that it had transacted over €160m of deals in Germany this year, including buying four value-add and core-plus properties for €125m for three of its various funds, bought from foreign owners looking for a strategic exit from the market.
Putting the deals in the context of the company’s strategy, Ulf Christiansen, responsible for purchases and sales at Rockspring in Germany, commented: “We have taken advantage of specific market dynamics to transact over €160m of deals for our clients, acquiring value-add and management intensive opportunities while exiting the higher priced core investments.”
The assets that Rockspring bought were: firstly, two core-plus retail warehouses, the Iller Center in Senden near Augsburg, and a retail warehouse centre in Berlin. They comprise 49,500 sq.m. gross letting area with an average purchase price of €1,440 per sq.m. In Leipzig, it purchased the 41,500 sq.m. value-added Löwen Center for €825 per sq.m. – with the intention of re-gearing all leases in the 20-year-old centre and undertaking a €6m refurbishment next year. The last acquisition is a 42,750 sq.m. single tenant logistics centre in Werl, North Rhine-Westphalia, for €410 per sq.m.
Rockspring partner Stuart Reid explained the rationale behind the purchases. “All four acquisitions have been sales by foreign owners, three of which entered the German market at its height and were looking for a clean exit to an equity purchaser.” Either the original investors had been unable to reach critical mass in their portfolios to support a purposeful asset management strategy, or they simply lacked the funding to actively manage the assets. “Many of these investors are underwater on their banking covenants and have not got the equity resources to take the financing and real estate forward”, he added.
“This trend is likely to continue as foreign banks and owners prepare further sales of non-core assets at attractive pricing over the next 24 months. In effect, these assets are the right properties in the hands of the wrong owners, offering great opportunity for Rockspring with our €1.25bn gross assets under management in the country.”
Rockspring also said it plans to continue investing in Germany, focusing on core-plus assets that may attract weaker demand as banks continue their retreat from lending by concentrating only on core assets. With the gap between core and core-plus having now widened to 200 basis points from practically no gap at all at the peak, Reid said this is where the company sees the most value. “We keep our eyes open for what we consider to be under-priced non-core assets, whatever the sector”, he said.
While envisaging a steady flow of secondary assets onto the market over the coming two years, Reid said he expected at most about half of them to be of institutional quality. Assets below that quality (“third-class assets”) will suffer even more than good non-core stock, he believes. “The buyer needs to be able to purchase and effect the business plan with either full equity or low LTVs, so competition is currently weaker in this market,” he said.
Given the high level of demand for German assets from institutionals, Rockspring also took advantage of the moment to sell two core long-leased retail warehouses on behalf of its €700m Rockspring German Retail Box Fund (RGRBF). The properties in Jever and Krefeld were sold to two German institutional investors for just over €30m, or €1,740 per sqm. It also completed a further three sales of €6m in non-core holdings in North Rhine-Westphalia to local purchasers.
Overall, Rockspring has gross assets of €7.4bn in funds and undrawn commitments, with assets in the UK and 14 other European countries.