Union Investment, ZBI, plan takeover of BGP portfolio from China fund

In what could be a first for a major German fund manager, giant Union Investment is getting close to concluding a deal to buy about 16,000 German apartments for a sum of up to €2bn from the Chinese sovereign fund CIC. Negotiations between the parties are said to be exclusive, at this stage.

The BGP portfolio of apartments is being sold by Morgan Stanley Real Estate Investing (MSREF), whose principal investor is China's sovereign wealth fund CIC.

The deal would involve Union Investment buying BGP, which owns the properties, along with its 250 staff, with a view to offering the real estate to retail investors. Union would merge BGP with its own property platform prior to eventually transferring the BGP properties into its investment funds. The deal is expected to close in the first half of this year,

With the deal, Union Investment said that it and its partner ZBI Zentral Boden Immobilien Gruppe - 49.9% owned by Union Investment - plan to strengthen their joint residential real estate fund platform and increase the volume of managed funds.

For those with a long memory of transactions of German residential portfolios, they’ll remember that BGP was formed in 2005 as a joint venture between Australian investment group Babcock & Brown and property group GPT. At one point the joint venture had a value of €4bn.

Babcock & Brown was liquidated in 2009 and GPT shareholders received shares in BGP. These securities were held mainly by funds and 58,000 primarily Australian retail investors.

BGP's acquisition of the apartments in 2016 for €1.1bn had been the first major Chinese investment in German homes. CIC, advised by Morgan Stanley, outbid competitors such as Vonovia and Deutsche Wohnen to buy the portfolio. A year earlier, Austrian listed company Conwert – now part of Vonovia – had also tried unsuccessfully to buy the portfolio.

Prices have continued to rise strongly since then, and Union Investment is obviously planning on sustained strong demand for housing, particularly in the bigger German cities. Half of the BGP portfolio is in Berlin, with the rest scattered across the country, in cities such as Cologne, Düsseldorf, Kiel and Münster.

The Erlangen-based ZBI, which has been designing residential real estate funds for private and institutional investors since 2002, currently manages a portfolio of about 39,000 homes.

According to Jörg Kotzenbauer, head of corporate development at Union Investment and a member of ZBI’s supervisory board, “The BGP Group has an excellently positioned platform for the efficient and sustainable management of residential real estate holdings.”