LY30 by Greystar in Frankfurt offers rental apartments
Foreign investors are keeping a beady eye on opportunities in Germany's residential sector as prices continue to slide and landlords looking to unload properties to reduce their debt burdens. One sector of the market that is attracting major interest is that of micro-living and student accomodation, for a variety of reasons.
Greystar Real Estate Partners founder and boss Bob Faith talked about opportunities for private equity firms with capital to invest in a recent Bloomberg TV interview. His company, which specialises in residential apartments to let, is focused in Europe on housing frequently of interest to young professionals and students.
Bob Faith, Founder, Chairman, and CEO, Greystar Real Estate Partners
Faith said that while interest rates have caused chaos in residential real estate markets across Europe, nowhere is the wave of distress more evident than in Germany. “Germany is probably the most distressed in Europe right now, we are very closely looking through some interesting situations. I think there will be some investors that took too much debt when it was cheap.”
And when it was cheap, German residential prices soared and rental yields shrunk to record lows. Developers leveraged aggressively, while German banks often extended senior loans for up to 80% of a property's value. But what we're seeing now are developers filing for insolvency, landlords taking write-downs, and lenders bracing for loan losses.
The shifting interest rate environment meant that many developers have paused or halted construction, worsening likely future housing shortages and inevitably pushing up rents, said Faith. Institutional investors can see that, and are now very keen to allocate more capital to residential investment.
Now, with rising bond yields, investors are adjusting their return expectations, while real estate prices are falling. Faith said of Greystar's strategy, “We are fortunate, we are a lower leverage investor and we have longer time frame to move through. Actually often, times of distress are our times of greatest growth.”
Greystar has been rolling out its in-house student housing brand Canvas which launched last year and operates properties in France, Germany, Netherlands and the UK. It is currently rebuilding its portfolio in Spain after selling RESA, its Spanish student housing business which it owned with AXA IM Alts and CBRE Investment Management to Dutch investor PGGM's Infrastructure Fund for €900m.
In Germany, the company has extended its footprint to its second Canvas development, in Hamburg-Harburg, after opening its first Canvas Living location in October 2022 in Frankfurt. The brand incorporates furnished apartments along with residential services such as common areas and a dedicated on-site team, with other facilities beloved of mobile young professionals, couples and students, such as co-working spaces and bike storage.
Last year the South Carolina-headquartered Greystar raised €1.55bn for a new fund targeting residential housing in Europe, well ahead of the original €1bn it had been seeking. At the time, Mark Allnutt, Greystar's head of Europe, said: “Residential has historically been the best inflation hedge of all commercial real estate, because of the duration of lease." With shorter leases, reviewed annually, they track inflation more closely than commercial property, a big advantage for the landlord. Allnutt said he expects rents would at least keep pace with inflation in the company's key European markets, because “there is chronic undersupply of housing across all our markets”.
