Corestate targeting €1bn investment, bullish on Asian inflows
Switzerland-based opportunistic private equity group Corestate Capital is gearing up for renewed investment in distressed or underperforming assets in Germany and perhaps – for the first time - further afield this year, as it continues to stitch together club deals in the residential sector.
Earlier this month the company bought a German mixed-use commercial and residential portfolio valued at €290m in what it described as a “special situation”. These “special situations are the bread and butter of Corestate’s business, which is identifying portfolios with turn-around potential, applying the company’s upgrading and asset-management formula, and exiting after a decent period of yield compression.
In the latest deal, the commercial assets are located in urban areas such as Berlin, Bonn and Freiburg and comprise of six office buildings, which are let to Deutsche Telekom. Corestate said the buildings yield steady cash flows and are characterised by debt restructuring and redevelopment potential.
The residential assets comprise of 6,000 units which are located across major cities in North-Rhine-Westphalia (NRW), primarily Dortmund and Essen. The buildings are acquired out of a forced administration and have already been recapitalised, but are suffering from a maintenance backlog and require a substantial amount of capital investment, said Corestate.
Although Corestate was keeping schtumm on what it actually paid for the portfolio, it said the initial average rental yield on the assets was 9%. Chairman Ralph Winter commented on the deal, “Although non-core in its risk profile, debt financing for the portfolio was readily obtainable from various lenders who value our active asset management approach and track record in asset turn-arounds.
"Our club deal approach shows that there is significant investor interest even in transactions in the range of €300 million and above. We therefore decided to expand our investor relations team by hiring further expertise to realise club deals in a volume of €1bn and more.”
Winter has been following the trail of money and inward investment into European real estate markets and sees much of it coming in future from Asia. Announcing the opening of a Singapore office for Corestate recently, he said that Corestate was “never in a better situation to raise equity than we are today. You can now go globally for equity and it’s not only from the institutionals. We have been doing business for three years with ultra high net worth individuals and family offices. This private wealth sector is coming to the market with enormous pockets of equity.”
He sees a lot of interest from the region in Germany, mainly because of how Asian investors view the risk-return profile. Given some of the geo-political risks in the region, like in Korea, he suggested, 4.5% or 5% cap rates in Europe appear highly attractive.