Grainger has sold a 3,000-strong German residential portfolio worth around €220m to a new joint venture fund with Heitman, which has capital sourced from the National Pension Service of Korea, with the portfolio just refinanced with a seven-year Corealcredit Bank senior debt facility.
Corealcredit’s facility – which replaces the matured €159m Hypothekenbank Frankfurt senior loan, the new bad bank name for Commerzbank’s Eurohypo – was for €165m in total, with €152m transferred to the joint venture. The remaining €13m debt balance is secured by part of Grainger’s wider German residential portfolio separate to this new joint venture.
CoStar News understands that the €165m seven-year Coralcredit senior loan was priced at 180 basis points with a co-terminus interest rate swap, which takes the all-in cost of debt to around 300 bps.
Coralcredit, the pdandbrief bank which acquired through its Lone Star Fund 5 German Investments fund in January 2006, was also the swap counterparty.
Grainger has retained the balance of the equity and acted as property manager, in a fund called Mount Halla Grainger JV Sarl.
Mount Halla is an extinct volcano on Cheju Island in South Korea, and is the name given to the joint venture fund by Heitman’s principal equity backer for the fund, the National Pension Service of Korea, which is the fourth largest pension fund in the world.
The joint venture partners’ long-term strategy is aimed at maximising returns through income growth and active asset management, while allowing Grainger to replace rental income with bolstered management income as part of a wider strategy to align itself with third party institutional capital and efficiently recycle its capital.
For Heitman the joint venture represents a further step in its growth in Europe and aligning with local property firms.
The portfolio comprises 2,985 residential units across six regions in Germany and produces an approximate annualised profit of €5.2m, including revaluation gains.
Rob Reiskin, co-head of Europe at Heitman, said: “With most of the assets located in high barrier to entry premier markets, Bavaria and Baden Württemberg, the joint venture provides a rare opportunity for institutional investment where it has formerly been difficult to gain exposure.”
Andrew Cunningham, chief executive of Grainger, said: “This new partnership with Heitman and its institutional client represents a strong endorsement of Grainger’s operational platform and the prospects for the German residential investment market.
“This deal supports our on-going programme of generating greater fee income from third parties, balancing our trading income with other recurring income – a key aim for the company, and our process of deleveraging.
“There is a strong interest among many other global real estate investors in the residential market at the moment which allows us to align our interests closely and provide our operational platform and expert management services to those investors wishing to access the residential market in the UK as well as Germany.”
Grainger separately directly owns a further 3,400 assets in Germany.
Heitman recruited ING Real Estate’s Scott Dwyer as head of portfolio management for the firm’s European private equity operations at the start of September.