GNIW pivots to address German Single Family Rental (SFR) market

Institutional demand rising for Single Family Rentals in markets worldwide

We've written in REFIRE before about GNIW, or the Gesellschaft für Nachhaltige Immobilienwirtschaft, one of the leading players in the so-called equity release segment of the market. Checking in recently with the company about a year later, to see how things were getting on, we found a number of things to interest us since our last talk.

We report elsewhere in this issue of REFIRE on the health and growth of the equity release sector, a fairly new branch of property financing for Germany, and which offers a number of products designed to help homeowners to release some or all of the capital tied up in their homes. The concept is now beginning to take hold among German property owners who, for one reason or another, would like to liquidate some of the hard-earned equity in their house or apartment, built up after many years.

There are different forms of equity release, ranging from Rückmietverkauf (rent-back), Teilkauf (partial purchase), Leibrente (life annuity), Umkehrhypotheke (reverse mortgage) or so-called 'tilgungsfreie Darlehen' (grace loans) which are bank loans charging low interest rates but secured on the underlying property.

GNIW specialises in leaseback sales (Rückmietverkauf), and it has a straightforward business model. It buys a single-family home from its owners and guarantees them the right to remain as long as they want in the property. They can give notice to move out at any time, but GNIW cannot, for its part, give them notice. There are no charges for the homeowner, all of which are taken over by GNIW.

GNIW buys the property and pays cash to the owners, who can do with the cash whatever they want. They pay a market rent, plus the usual ancillary monthly charges, and can continue to live there as tenants for as long as they want. They don't have to move house, or lose proximity to friends and neighbours, but suddenly have a bundle of cash on their account.

The key ingredient in the business model is that all German properties can be valued, but there is a price differential of 25% between vacant properties and the same property with sitting tenants and protected tenancy. Accessing those properties at the 25% discounted price, with a view to selling the property at some point in the future when it is empty, is what will fuel GNIW's growth.

GNIW has been steadily buying up properties across Germany since its foundation and has added a "three-digit number" of new properties since we last spoke, giving it fully nationwide coverage. The purchase of several hundred more properties is in the immediate pipeline, while the company plans expansion well beyond its existing network of over 1,000 brokers, financial distributors and sales platforms, including PlanetHome, LBS NordWest, Garant Immobilien, ImmobilienScout24 as well as various Volksbanken and Sparkassen.

According to Dr. Henryk Seeger, founder and managing director of GNIW, "With a three-digit number of single-family and terraced houses, we are, to our knowledge, the largest landlord in Germany in this sector. Overall, single-family and terraced houses are punitively underestimated as an investment. The assumption of a high administrative overhead seems to deter investors. However, we've managed to digitise a large part of our administrative tasks, with our model keeping overheads low. Other models have significantly higher administrative costs or high barriers to entry. We have been able to break down the small-scale nature of the single-family home business."

What's notable now about the company's prospects is a shift in the market. Dr. Seeger and GNIW are building up a sizeable holding of single-family homes for rent, and creating in the process an investable product for institutional investors, an asset category that has been growing in popularity in the USA, the UK and elsewhere over the last couple of years.

As Dr. Seeger's colleague, Sascha Lohfink, CFO of GNIW , says: "Investors are increasingly looking for investment opportunities beyond just the the multifamily market. The single-family market is now investable. Our product is now fully legally compliant and is simple to understand, so that there is no reputational risk for us, our product and our investors."

Lohfink's comments are a reference to the not-always favourable press the equity-release sector has enjoyed in the media, with a number of influential commentators taking the view that the playing field is tilted in favour of the finance providers, and is an expensive form of finance for the equity owners looking to free up cash.

Dr. Seeger argues convincingly that a portfolio of single family houses can have no better tenant base than occupiers who have lived for years in the property and are likely to care for it like no other. "There are no better tenants than former owners. They are emotionally attached to the property and support us willingly and motivatedly in managing the portfolio," said Dr Seeger. "That is why we care so much about a good and long-term relationship with our clients. Our model is designed for maximum transparency. Each of our clients knows what to expect."

GNIW is tapping into a new trend that has been emerging particularly in the US since the onset of COVID. The pandemic seems to have triggered a move to residential strategies that can provide institutional investors with stabilised rental income while at the same time embracing trend shifts towards suburban living and a desire for a better work-life balance.

Europe has seen huge growth in multi-family housing (MFH) investments in recent years, following on from a trend in the USA which has seen multi-family become the most traded American real estate asset class for the past three years.

To put this in perspective, in the US the housing market outside major cities is dominated by single family homes. After the financial crisis of 2008-09, which saw housing affordability and home-building declining significantly, a new asset class emerged - Single Family Rental (SFR). Over the next ten years, big institutional real estate asset managers such as Blackstone (through its Invitation Homes) and Amherst Capital have gone on to create multibillion-dollar portfolios of single family homes, being rented out privately to families, with the goal of creating long-term income streams, capital growth, and a superior rental experience.

These early investors are now rapidly being joined by others such as JP Morgan, KKR, Canadian pension giant PSP Investment, Global City Investment, and others. While in contrast with the US, the European market remains highly fragmented with many unique national characteristics and plenty of local regulations, both big markets are seeing a renewed rise in renting both in urban and suburban locations, with many traditional "owners-for-life" now choosing to rent for a variety of reasons.

This should work in GNIW's favour in Germany, and help the company create a viable institutional product that would appeal to investors looking to tap into a long-term trend. The problem in the past has been that this segment of the market has been largely inaccessible to institutionals, who've largely had to focus on multi-family housing and Build-to-Rent (BTR).

Other new platforms have emerged, such as IMMO Capital, a platform powered by machine-learning to identify single family home assets that may be slightly mis-priced, which should enable investors to isolate and identify residential assets based on hundreds of physical data points. Other models too, are coming to market, to identify opportunities in the SFR space. GNIW should be well positioned to tailor-make products and packages that could appeal to investors looking to enter the SFR sector, with a credible established partner in a special niche.