Covivio buys for €130m in HPBA-brokered off-market deal

In a significant Berlin residential deal, Covivio paid €130m for a portfolio containing 490 residential and 62 commercial units. The seller was Luxembourg investment manager Threestones Capital, and both sides were advised by specialist off-market broker HPBA.

Covivio has been beefing up its German residential holdings in its core markets of Berlin, Hamburg, Dresden, Leipzig and North Rhine-Westphalia. This Berlin deal adds a further 41,500 sqm across 19 properties to Covivio's existing classical multi-family city houses mainly in Berlin's Charlottenburg-Wilmersdorf, Mitte and Friedrichshain-Kreuzberg districts, as well as a number in Spandau.

Several of the properties, typical historical Berlin buildings, are already divided into condominiums and can be expanded with additional living space through loft conversions. The housing portion of the portfolio is currently generating average rents of €8.40, well below current market rents. Covivio plans an upgrade of the quality, comfort and attractiveness of the assets, it said. The portfolio is currently yielding 3.5% on the purchase price.

According to Dr. Daniel Frey, Covivio's CEO for Germany, said of the deal: "Covivio's investment strategy is focused on central locations, combining living and working environments, with excellent public transport links. This approach is also key to achieve our sustainability and environmental efficiency goals. This strategy is the most value-creating because these neighbourhoods are where people and businesses want to be and growth." Covivio has more than 16,000 apartment units in Berlin, making it one of the city's largest private landlords. Overall in Germany it owns and manages more than 40,000 units.

Covivio is the first major landlord in Germany to have its entire housing stock and property management certified according to the HQE standard (Haute Qualité Environnementale). The company is regularly awarded top marks in corresponding customer surveys, including the Fairest Landlord's annual one. The company's roots in Germany were originally as the company Immeo, which was taken over by French group Foncière des Régions in 2006. 

The deal is quite an achievement for local Berlin off-market specialist broker HPBA, who advised both buyer and seller throughout the process. John Amram, managing director of HPBA, said: “The residential real estate market in Berlin remains attractive and will continue to be so for many years despite numerous official regulatory measures. In this regard, off-market transactions are gaining in significance against the background of the coronavirus crisis. With our special HPBA off-market method we can create a high level of transaction certainty for both the buyer and the seller."

HPBA brings out a regular annual survey of the off-market sector which is carried out by specialist research group Bulwiengesa. In last November's edition, the clear message was that the off-market segment for German real estate will continue to grow compared to on-market deals and is actually benefiting as a result of the corona recession.

Amram said at the time, "The off-market studies of recent years have shown that the off-market segment with a transaction volume of more than €40 billion is not a niche market. The fact that this market segment is now growing shows that market players value advantages such as high probability of closing a deal, confidentiality, and a lower time and cost requirement compared to bidding procedures.”

The study claimed that the success rate of off-market transactions is on average 17 percentage points higher than for on-market transactions. A quarter of all transactions even have an off-market success rate of 100%. The proportion of those with a 100% success rate is even twice as high off-market as on-market. The arithmetic mean comes out at a success rate of 55%, meaning that more than every second off-market transaction is successful - a far higher rate than on-market bidding processes, where only around 38% of the deals pursued lead to a successful conclusion.

The term 'off-market' has a number of definitions, but it broadly means trading assets in the form of a sale or a swap deal which excludes the public or a broad range of competitive bidders, and negotiating with either a small group of interested buyers or in exclusive bilateral dealings with a single party, either directly by the seller or by a specialist off-market adviser. REFIRE will be reporting on the next survey, due out in the fourth quarter, we expect.