Shift in strategy at Corestate to more joint ventures, club deals

The Zug, Switzerland-based private equity investor Corestate Capital joined the rather thin ranks of European fund managers exiting an industry sector in favour of a stronger operating partner, when it transferred its commercial property fund to Tristan Capital Partners earlier last month.

At the same time it took on a new equity partner, with whom it hopes to broaden its hitherto highly opportunistic approach to investing in its key market, German residential. Both moves signify a shift in the company’s approach to greater focus on joint ventures and club deals in areas in which it believes it has a stronger competitive advantage.

Mainly specializing in German residential, Corestate nonetheless launched its so far only German Commercial Properties Fund in 2007, backed by limited partners including CBRE Global Investors, Partners Group and Finnish group Pohjola. Earlier this year Corestate decided not to extend the maturity date of the fund, and has now transferred management of the fund to London-based Tristan Capital, for a non-disclosed price. The fund started up by buying 33 properties with a gross lettable are of 124,000 sqm acquired for €165m, and now holds properties worth an estimated €280m.

“Corestate plans to focus much more in future on joint ventures and club deals, such as we’ve done in the past, which is why we’re passing the management of the fund to Tristan. The fund was in any event close to expiry”, the company said.

Corestate CEO and founder Ralph Winter had said earlier this year that the company was looking to expand further on the back of proven investor appetite for clear, structured club deals, and that it was expecting to do nearly €1bn of club deals before the end of the year. The company recently beefed up its team by hiring Steffen Ricken, a former managing director of IVG Institutional Funds, to be its head of global capital raising. This includes responsibility for boosting the joint venture and club deals activity. Earlier this year Corestate established its own property management company in Germany to capture more value and better help it to reposition its own assets.

Also designed to underpin Corestate’s expansion plans into value-added and core strategies was its recent sale of a stake to Swiss-listed real estate development specialist Intershop Holding, for €20m. The transaction involves a capital increase and the purchase of existing shares and participation certificates. With “demand for core and value-added products increasing”, said Corestate, its new strategic partner would help it to “exploit lucrative growth opportunities in Germany’s real estate market”.

“Intershop proved the perfect partner for Corestate as we are aiming to expand our equity base for further growth and they are looking to invest in Germany,” Winter said. “Intershop is planning to build up a portfolio in Germany and was looking for a partner with local expertise.”
Founded in 1962, Intershop started with financing and investing in retail projects in France, Germany, Switzerland, and subsequently the US and Czech Republic. Since 1997 it has concentrated on the Swiss market and now manages over CHF1bn (€807m) in assets.

Meanwhile, recent financial performance over at Corestate’s majority-owned provider of branded student accommodation YOUNIQ has been less than impressive. YOUNIQ, the market leader among the new wave of “plug and study” student apartments in German’s larger university towns, booked a loss of €21.4m in the first half, compared to about break even in the same period last year. The company says the loss was due to downward property valuations of €6.5m, although rental income continued to rise, from 2.2m to 3.9m. However, a number of properties had to be sold as the failed to meet the YOUNIQ specifications, the company said.