Activum SG Capital Management, the Jersey-registered but German-focused real estate fund manager, recently made its first mezzanine investment in Germany.
Activum’s main business is repositioning undervalued real estate in Germany. In its latest deal, the company extended a mezzanine loan to high-profile Frankfurt property entrepreneur Ardi Goldman on the “Material Arts” property, a 15,500 sqm retail office redevelopment just off the Zeil, Frankfurt’s main shopping street. The mezzanine loan will keep the capital stack from 60 to 80% loan to cost just below the senior loan secured by a mortgage loan from a German bank.
According to Activum SG founder Saul Goldstein, commenting on the deal at the recent Expo Real trade fair in Munich, “This was a classic example of the market’s growing need for additional capital beyond the traditional senior debt. We are continuously looking for sound real estate projects to invest in, whether through equity or debt, depending on the needs of the market. In this case, Goldman had a unique redevelopment project with 40% pre-leased, but needed additional capital to complete the project. We were able to provide the additional financing.” Goldstein indicated that further mezzanine deals would likely follow, probably likewise from the Activum SG Fund II, a house fund which has now invested about half of its €240m equity capital.
Goldstein has a Berlin-based team of experts to scour the German market for undervalued opportunities. At a recent conference he shared his views on the German market: “Germany is a decent economy where high quality underlying real estate is dominated by domestic investors, with foreign ownership being relatively low. Moreover, there aren’t spikes in rent and value increase (unless a flurry of foreign investment drives up pricing like in 2006-2007). So, it is THE place to find decent – even great – risk-adjusted returns.”
“With only 29% foreign investment, it is still a place we see as being under-valued overall. Case in point: we sold two buildings this year at 7% NOI yields. These are two fully stabilised high-quality buildings in ‘prime’ cities but in ‘secondary’ locations. By ‘stabilised’ we mean nearly fully occupied with solid underlying tenants with average lease lengths of 6 years. An investor should be able to finance the yield spread at 3% (which is the current low rate German banks are offering) for a 60% LTV. This equates to approximately a 13% yield on equity for 6 years.”