New platform GEG kicks off with €160m Munich assets

The newly-established German Estate Group (GEG), the platform created by Frankfurt-based developer and property manager DIC and the US buyout group KKR, has kicked off its investment programme by buying two assets in Munich for a total of €160m.

For KKR it is the group's first foray into German real estate, although it has been involved in other sectors of German industry for more than 15 years, where it has more than €3.3bn invested across 15 different companies. In January this year it announced its 50-50 joint venture with experienced local investment group DIC Deutsche Immobilien Chancen, which has since shifted its operational business into GEG along with its 40 staff.

DIC has experience of other joint alliances in Germany in the past, including partnerships with Starwood and Morgan Stanley. However, the new GEG operation seems to be of a different order of commitment. CEO of GEG Ulrich Höller, who has since resigned his position of CEO at DIC, described the new venture's goals:

"Our aim is to build up an important portfolio together within the next few years. We will invest in offices, residential and also retail, acquiring both existing assets and developing new ones. As such, we will invest in both core and opportunistic assets, largely in Germany’s "Big 7", although we are not limited to those markets."

For opportunistic investments and developments, GEG is targeting returns of around 15%. For core assets, the range typically is between 4%-6%, Höller said. GEG invests using both its own capital and third-party money.

The first two acquisitions in Munich cover both the core and the opportunistic elements of GEG's stated strategy.

Firstly, the 'core' Sapporobogen office building, across from the Olympia Park, was bought from Württembergische Lebensversicherung, a Stuttgart-based insurance company, for €90m. It provides around 27,500 sqm of office space on 11 floors and is almost fully-let to blue-chip tenants, with an average remaining lease term of six years.

The second asset, the Neue Pasinger Mitte, was bought for GEG's opportunistic business from DIC's 33%-owned part subsidiary DIC Asset for €70m, in a deal financed by BayernLB. Located at Bäckerstrasse in the city's Pasing district, it includes a medical centre, tower block and retail building complex along with a vacant plot yet to be developed. A local development plan for the entire estate has already been finalised.

The medical centre and tower block are to be redeveloped, while the retail building complex will be entirely rebuilt to offer 11,000 sqm including 80 new residential units opposite the highly-popular Pasing Arcaden shopping centre.

Construction is scheduled to start in the fall of 2016, and is expected to take around two years to complete.