Gagfah refinancing first of several new loan deals

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The recent refinancing deal by listed residential investor and manager Gagfah of its notorious Dresden housing portfolio was – by a big margin – the biggest single refinancing on the German real estate market since the onset of the credit crisis. It’s unlikely to be the last, however, as Gagfah said it plans a further number of newly-negotiated loans in the first half-year, before tackling even larger amounts in the autumn.

The deal with Bank of America Merrill Lynch to finance €1.06bn of Dresdner’s €1.7bn Woba housing portfolio with its 37,500 apartment units effectively replaces two securitised loans totalling €2.04bn – the Deco 14 loan from Deutsche Bank and the Windermere IX from Lehman Brothers – which were due for repayment on May 15th 2013. The new loan represents about 60% of the portfolio’s current value. It obviates the need for Gagfah to sell the portfolio, which was its initial strategy, although market reports throughout the last quarter consistently suggested that maximum bids of €1.6bn were falling well short of Gagfah’s own valuation of the portfolio of €1.8bn.

The new five-year refinancing deal outstrips the recent €657m loan granted by Berlin Hyp to fellow housing company Deutsche Annington. It will see Gagfah lower its overall financing costs by 43 basis points, paying an interest rate of 3.9% with a capital repayment rate of 1% annually. Bank of America is expected to securitise the loan, although it hasn’t commented on the deal so far. A further loan of €2.3bn is due for repayment by Gagfah in August, although loans of that size almost inevitably have to be broken up into smaller chunks.

The Dresden portfolio, considered the jewel in Gagfah’s crown, makes up about 25% of Gagfah’s total holdings. Gagfah has invested over €180m into the Woba portfolio, and says now that it plans a further €100m injection over the next five years.The listed Luxembourg-based Gagfah is majority-owned by US private equity investor Fortress.

Gagfah CEO Stephen Charlton said in a statement that the company had decided that refinancing the loans rather than selling the Woba portfolio was a decision that ultimately provided more value for the shareholders, “ins spite of attractive bids for the portfolio”. The shares initially reacted positively before subsequently weakening, although the gap to the stated net asset value of €13.15 is still proving a thorn in Gagfah management’s side. The shares are currently trading at just below €9.00.

Charlton added, “We are happy with this result as it solidifies our position as the largest owner of residential real estate listed in Germany…We are looking forward to further intensifying the close dialogue with a number of parties and to maintaining our significant presence in this attractive city. We believe that Dresden has a great future ahead of it.”