Falling transaction volumes and purchase prices for residential real estate portfolios

7 Jul, 2008, Frankfurt

According to calculations, Cushman & Wakefield (C&W) brokered residential real estate portfolios consisting of 125,000 apartments and a volume of 4.7 billion euros during the first six months of this year. This represents an 11% decrease in apartments brokered compared to the same period last year. However, the estimated transaction volume fell more dramatically, by 34%, mainly due to lower average prices. Having brokered 372,000 apartments (18 billion euros) in 2005, 310,000 apartments (15.5 billion euros) in 2006 and 270,000 apartments (14.5 billion euros) in 2007, C&W is continuing to experience a reduction in units brokered in 2008.

The most important transaction in the first half of 2008 was the sale of the regional development company NRW in June, including around 93,000 apartments, to Goldman Sachs’ Whitehall Fund. “Without this deal, the transaction volume would have experienced a sharp fall,” stated Dr Martin Braun, partner and director of C&W Germany’s capital markets division. “Although several smaller portfolios are on the market, no further large transactions have taken place since the acquisition of the BauBeCon portfolio through Pirelli Real Estate last July, except for the LEG-NRW portfolio.”

Apart from Goldman Sachs, most financial investors who had been investing heavily in the German residential real estate market since 2004 are now withdrawing from this market, with Cerberus, Blackstone and Oaktree selling on their BauBeCon, Vitus and Gehag portfolios, respectively, in 2007. Fortress had already placed Gagfah Group shares on the market by the end of 2006. “These investors’ expectations of rapid privatisation and asset management potential were only partly met,” says Matthias Franz, a senior consultant from the corporate finance department. “After the opportunists, it is now the turn of equity-rich investors.”

As a result, private equity investors represented the largest group of sellers in 2007 (42%), followed by non-listed property companies and private investors. Particularly active buyers included listed property companies (38%) and non-listed companies (24%). The majority of buyers (48%) were German.

Yields on large residential real estate portfolios were steadily decreasing by the middle of last year. This development, also known as “yield compression”, led to purchase prices of 16 times the respective basic rental prices in 2007. At the same time, rates per square metre rose to €830 per m2. Since last summer, there has, however, been a noticeable reverse in trends: “It is becoming clear that the poor financial environment is also having a negative effect on the purchase prices being paid for larger residential real estate portfolios and returns are therefore increasing once more” Braun concludes.

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