REDOS strikes out in new direction with new €500m JV

REDOS Real Estate, previously most widely known as a partner with Morgan Stanley in the investment bank’s German retail investments, has now teamed up with fund manager Union Investment to create a new retail investment fund. The new Spezialfonds, REDOS Einzelhandel Deutschland, is targeting a volume of €500m in large scale German retail property.

The new fund has already raised €250m (including 50% leverage) from institutional investors with longer time frames, such as pension funds and insurance companies. It will by ‘oversized’ superstores and hypermarkets, as well as larger retail warehouses. Four properties worth €50m have already been bought (two TOOM home improvement stores, a REAL box warehouse and an Adler clothing store), with signatures on a further €70m ‘imminent’ (six stores with predominantly ‘grocer’ anchor tenants), according to REDOS. The fund is expected to run for 12-15 years, and is aiming at a 7% pre-tax dividend payout.

Oliver Herrmann, REDOS managing director, commented on how the fund aimed to benefit by focusing on the restrictive planning climate being favoured by many German municipalities, anxious to protect endangered downtown shopping districts. “The investments will concentrate on selected sites characterised by high purchasing power and centrality”, he said. “Municipal governments rarely ever zone new sites for large-scale retail units - the licensing practice is highly restrictive.” This, said Herrmann, makes existing properties “particularly interesting for institutional investors with a focus on core properties”, due to the exclusion of potential competition.

Assets targeted will be large, predominantly grocery-anchored stores, with a unit value of between €5m and €20m and a lease life of between 7 and 20 years. Preferred locations are those with above-average buying power, a high centrality factor, and positive (i.e. growing) demographics. Assets with short remaining lease life and those with strong development potential will also be considered.

REDOS has most recently worked with Morgan Stanley’s MSREF funds, with a recent notable deal being the Christie retail portfolio from M&G. REDOS itself has a portfolio of 77 German retail properties valued at €1.1bn. According to Herrman, “If we’re known, we’re largely known as an opportunistic investor, after doing four deals with Morgan Stanley. But the second pillar of our business is now ‘core’” – hence the new partnership with Union Investment.

With its new partner Union Investment, REDOS will act as the fund manager and asset manager for the joint venture, while Union will provide fund administration through its ServiceKAG platform, and raise equity through its extensive distribution network, which includes the Volksbanken and Raiffeisenbanken, as well as pension funds. REDOS is also building up its own distribution network. The two partners said they will manage investor accounts jointly.