GBW portfolio to provide benchmark for German multi-family CMBS

While Deutsche Annington’s moves to tackle its refinancing problem provided much of the main focus of investor attention in recent weeks, the rating agency Fitch highlighted another upcoming sale – that of German Landesbank BayernLB’s residential housing unit GBW – as the deal likely to set a benchmark for the prospects of refinancing the two other large multi-family housing CMBS portfolios in Germany.

GBW owns and manages 33,000 residential apartments, located throughout Bavaria. BayernLB has been ordered by Brussels diktat to hive off its housing unit in return for receiving bailout funds. The bank, the last of the country’s state-owned lenders to be given final EU conditions for its bailout, received €10bn in capital and €4.8bn in Bavarian state guarantees, as well as €15bn in loans from Germany’s bank-rescue fund Soffin, to stave off collapse in 2008.

In a recently-released report, Fitch pointed to sustained investor demand for exposure to the well-managed multi-family residential sector in the run-up to GBW’s refinancing deadlines, which should augur well for the three large German CMBS facing imminent maturity. However, it warns that balloon risk remains a concern considering the size of the loans falling due, and the current constraints in real estate financing.

The report concludes that the sale may help in setting a benchmark for the prospects of refinancing large German MFH CMBS. It is a similar size to Windermere IX, the smallest of the three major German transactions. However, the BayernLB portfolio is particularly attractive, says the report, because the properties are in Bavaria; the Windermere IX portfolio is contained in the less affluent city of Dresden, making a precise comparison difficult. The other two transactions, German Residential Funding PLC and German Residential Asset Note Distributor PLC are about two and five times the size of the BayernLB portfolio in terms of the number of apartments.

The CMBS financing of Deutsche Annington (see elsewhere in this issue), the €4.4bn German Residential Asset Note Distributor, is secured against 162,000 units and matures in July 2013. Gagfah’s €2.2bn German Residential Funding is about twice GBW’s size and matures in October 2013.

Fitch said multi-family housing trades of over 800 apartments in size rose to 21 last year from 17 in 2010, while total units sold almost trebled to 90,200 from 33,500. Average prices also rose to €50,000 per unit from €41,000, close to 2007 pre-crisis peak of €53,000.

There is a huge amount of multi-family housing debt maturing in 2013, and European banks continue to scale back their exposure to commercial real estate. Concerns over balloon risk led to downgrades in all three of the large transactions in April this year. While the message is unchanged, the interest in the BayernLB sale is a positive signal that helps to put balloon risk into context, say the Fitch researchers.

Meanwhile, after a period of some uncertainty as to who might be eligible to bid for the GBW subsidiary, it is now clear that, under instructions from Brussels, BayernLB will now open the bidding to private investors, after the regional government had originally said it intended to restrict the bidding to Bavarian municipalities. The EU now insist that the GBW subsidiary be brought onto the market in a public and transparent bidding process. “Whoever pays the best price should get it, regardless of origin or owner; those are the rules, and everyone must abide by them,” EU Competition Commissioner Joaquín Almunia said in a statement.

Among the first private groups to voice their interest in the portfolio was Augsburg-based Patrizia Immobilien AG, who earlier this year led a consortium of insurers and pension funds to buy the housing division of Stuttgart-based regional bank LBBW. Patrizia said in a statement that a similarly-constructed consortium made up of pension funds and insurance companies under its leadership would be the “best-suited owners for such properties in Bavaria”, as they had a “long-term perspective, financial stability and conservative return expectations”.