Residential specialist Grand City raised €200m bond

The Berlin-based Grand City Properties said that demand for its 6.25% €100m corporate bond, issued in a private placement with European institutions in June, was so strong that it is increasing the size by a further €100m, and plans to use the proceeds to buy further properties.

Registered in Luxembourg, Grand City specialises in buying and managing German residential properties with high value-add potential in large urban high-density areas, particularly in North-Rhine Westphalia and Berlin. It currently owns 16,200 residential units with a lettable area of nearly 1.2m sqm, and valued at €375m. Its current focus is on portfolios in Nuremberg, Dresden, Leipzig, Mannheim and Bremen, with about 5,000 units in the pipeline, due to be closed on in the next six months.

The Series B Bond, rated BB- (stable outlook) by Standard & Poor’s, will now be offered publicly in Germany, Austria and Luxembourg after an initial private placement. The public offer for the securitised bond with a coupon of 6.25% and a maturity of seven years, took place over two weeks in July, with Quirin Bank as lead manager and bookrunner.

Advisory board member Christian Windfuhr commented: “We concentrate on portfolio sizes between 300-2,000 residential units, and we see very good buying opportunities for residential properties with high appreciation potential.”

Listed on the Frankfurt Stock Exchange, about 45% of Grand City stock is held by a firm named Edolaxia, 5.5% by Valuemonth Holdings, 5% by Merrill Lynch International, 2% by Zanelo Trading and 42% are in free float.

REFIRE: Grand City has grown very rapidly over the past couple of years in the notoriously tough segment of small-sized residential portfolios with ‘upside potential’. The niche tends to be in that size where the assets it buys are either too large for private individuals, or too small and tricky to manage for institutional investors.

Companies operating in this space (Corestate Capital is one company that comes to mind) share the same ‘trading’ philosophy,of upgrading and turning over smaller-sized portfolios, and sourcing them through a heavily-touted network of ‘eyes and ears’ very close to the ground. By contrast, the larger listed property companies have been taking more of a ‘buy and hold’ approach, and are looking for assets that can be absorbed into their standardised IT systems for property management. The byword in this segment is – as Grand City themselves describe it – “to maximise cash-flows through the relentless management of its assets by increasing rent and occupancy”. It certainly does require a relentless focus on buying at the right price, which is the crucial factor.

As a listed company, Grand City has recently raised €51m through two placings this year and last, although its obvious preferred route is by raising money through attractive interest-paying bonds. This has been a minority approach in Germany, although we’ve been a supporter of it in the past, as a hybrid approach to raising money that reduces bank dependency. Grand City will be keen to distance itself from any comparison with the somewhat similarly-structured WGF AG, whose over-dependence on the continual issuing of bonds led to that company’s recent downfall. We’ll be glad to track the company more closely than we have done so far, and will report on new developments.