Velero and KKR refinance German resi portfolio with €377m SocGen loan

Berlin-based residential property investor Velero Immobilien GmbH, in which private equity group KKR holds a majority stake, has refinanced its entire German residential portfolio.

The deal, which was orchestrated by FAP Finance, sees Velero taking out a new senior 6-year senior loan of €377m from Société Générale and repaying all its previous existing loans, resulting in a significant reduction in financing costs.

Velero plans to use the additional funds from the new financing to invest 'significantly' in its housing stock to increase its attractiveness and improve its energy performance.

Velero is a fully-integrated residential real estate platform that manages a portfolio of about 7,500 residential units with a total rental area of approximately 450,000 sqm. The properties are mainly located in medium-sized cities in North Rhine-Westphalia (such as Duisburg, Essen and Hagen), Saxony-Anhalt (Magdeburg), Saxony (Dresden and Halle/Leipzig) and Brandenburg. KKR acquired its majority stake in Velero at the end of 2020. 

The refinancing now paves the way for a significant expansion of the portfolio, said Velero. The company's founder and co-CEO Sascha Giest said: "As experts in repositioning residential portfolios with optimisation potential, we are also pleased to have the additional financial leeway to accelerate our investments in the quality of our portfolios and increase the living comfort of our tenants." 

Jan Baumgart, KKR's head of real estate for Germany, said: "The refinancing is an important building block for Velero's further growth course. To this end, we are already in advanced review of further acquisitions and are continuously probing the market for attractive offers."

Velero's target segment is affordable housing, particularly in economically strong B- and C-cities throughout Germany. It handles the entire spectrum of residential property management from asset management to property management, letting control and caretaker services with its own employees, which gives it almost total control over the development of the portfolio. 

It had already built up its 7,500-unit residential portfolio since its founding by Sascha Giest and Thomas Lange in 2015, before selling a majority stake in the business to KKR in 2020. It had originally been planning an IPO, valued at up to €500m, before switching strategies and teaming up with KKR.

Residential real estate has remained very much a preferred asset category across Europe, and particularly Germany, and now makes up about 30% of all European real estate investment, recent figures from property advisor Colliers show.

Last year, in 2020, a total of €60.7bn flowed into the residential investment sector in Europe, an 18% increase in activity compared to the five-year average. The ubiquitous nature of the residential sector and the broad range of opportunities it offers will lead to a rise in market share of the ‘beds’ sector relative to other commercial real estate types, reaching 30% of investment volumes in this new cycle as activity expands and deepens across European countries and cities, say Colliers.

"Given the underlying demographic and market dynamics, investors are increasingly seeing residential property as a relatively stable, defensive asset class amidst the huge disruption to economies and behavioural patterns caused by the pandemic," said Richard Divall, Colliers’ director and EMEA Head of Cross-border Capital Markets. "More and more pension, insurance and private equity funds are increasing their allocations to what looks set to remain a compelling opportunity for the long term, especially given the turbulence of the past year and the uncertain outlook for many other asset classes."