Corestate sells resi portfolio for e103m, buys again with Sistema

Private equity investor Corestate Capital sold a predominantly-residential property German portfolio to an international investor for €103m in March.

The portfolio comprises 2,700 residential and commercial units spread across Bavaria, Lower Saxony, North Rhine-Westphalia, Saxony and Saxony-Anhalt. "Corestate’s proactive asset management approach including the implementation of a capex program led to significant improvements in the performance of the assets and achieved their exit maturity", the company said on its website.

CEO Sascha Wilhelm said, “We acquired the portfolio in a period of high tension on the German real estate market. Through active asset management, and taking advantage of our fully integrated property management company CAPERA, we were able to successfully reposition the properties. The interest of international investors in the solid German property market in general and the stability of residential cash flows in particular is still unsaturated.”

Corestate recently teamed up with Sistema Capital Partners, the private equity real estate business backed by Russian billionaire Vladimir Yevtushenkov, to invest €125m in four German high-street retail properties. The four properties, on main pedestrianised shopping streets in greater Hamburg, Bremerhaven, Paderborn and Halle, total 60,000sqm. Tenants include H&M, Saturn, Depot and Esprit, and the occupancy rate is 94%. More than 60% of the investment is debt-funded.

The Sistema private equity platform invested for a club of co-investors, anchored by its parent company in London and Moscow-listed Sistema JSFC.  Corestate's CEO Sascha Wilhelm said the four assets are typify the type of opportunities that the joint venture is targeting. “They present plenty of angles to enhance their attractive yields through active asset management,” he said. “We still see a lot of such opportunities in the German market and therefore plan to grow our portfolio significantly within the next two to three years.”

Marjorie Brabet-Friel, Sistema Capital chief executive, commented: “One of the first requirements was to provide opportunistic returns in mature, liquid market markets. Third-party investors were looking for capital preservation and diversification towards Western markets as a hedge to their activities in Russia.”

The deal follows on from a similar purchase by Sistema last year with Corestate, when it led a club of investors in buying a 56,000 sqm portfolio of 21 assets in mid-sized German cities including Bremen, Essen and Düren for €125m. Here also the deal was funded with 60% debt.

The partnership with Corestate, said Ms. Brabet-Friel, came about because both companies understand the needs of high net worth and institutional investors and have similar return expectations.

Ms. Brabet-Friel said the company was looking to build a portfolio of assets it could then offer to other like-minded institutional and high net worth investors, providing net returns of approximately 15%. “The starting point was really asking how we could achieve those kind of returns,” she said. “We felt Germany was a liquid market – and secondary German cities could provide that.”

She believes that institutional investors were overly-focused on top locations on prime streets in Germany's biggest cities, ignoring opportunites in B and C-cities.

The Sistema strategy, she said, was buying smaller lot sizes, using a "step-by-step" approach and buying at a low level. "The biggest driver for us is underpricing", she said. "We can attract more institutional investors once a portfolio is cleaned up and ready." Sistema is planning to exit assets at the current price rather than holding them for future yield compression, she said.