Blackstone has divested 6,900 German multi-family units, part of Level One’s former assets bought out of administration more than 18 months ago, selling the Berlin portfolio to Deutsche Wohnen for €260m in cash and 8.15m shares worth €109m.
Level One, founded by Austrian property investor Cevdet Caner, fell into administration in August 2008, after breaching lending covenants, with a total debt including four securitised loans of around €1.3bn.
Blackstone acquired two separate portfolios for around €450m, comprised of 21,000 apartments and 700 commercial assets, which included two mini portfolios which were financed by separate Credit Suisse securitisations.
The Portier loan, secured by 3,200 residential and commercial units, was acquired by Blackstone for €128.5m, reflecting a 21.06% discount based on the €162.8m whole loan balance.
The Loews loan, secured by 3,600 residential and commercial units, was acquired by Blackstone for €91.5m, reflecting a 24.38% discount on the whole loan balance. In both cases, only fractional losses were incurred by securitised bondholders, while both B-notes, thought to have been unsold by Credit Suisse, were out of the money.
Deutsche Wohnen’s acquisition, which closed last Thursday, reflected part of these former securitised portfolios, along with some Berlin assets which were secured by bilateral bank finance.
Blackstone’s divestment leaves the private equity firm still holding around 8,000 units from the original 21,700-strong portfolio bought out of administration in two stages, at the end of 2011 and in early 2012.
In addition to the 5% shareholder interest in Deutsche Wohnen – valued at €109m when the transaction closed last Thursday – Blackstone also retains a 25% stake in Vitus Group, the German residential property company, after selling a 75% stake to Roundhill Capital, Aviva and Deutsche Bank in late 2007 for €1.6bn.
Deutsche Wohnen increased its share capital by 8.15m to finance the acquisition from Blackstone Real Estate Partners Europe III. A second 900-strong German multi-family portfolio was also acquired by Deutsche Wohnen for €51m, with both portfolios leveraged at 55% LTV, although the lenders were not disclosed.
With these two acquisitions, Deutsche Wohnen will increase its existing residential real estate portfolio by 7,800 to 90,300 residential units, of which 54% are located in Greater Berlin. For Deutsche Wohnen, this acquisition represents another attractive opportunity in its consistent continuation of its value-adding growth strategy.
Michael Zahn, chief executive officer at Deutsche Wohnen, said last October that he expects to increase the company’s market value to as high as €5bn euros within four years, according to a report by Bloomberg in January, up from €2.05bn at the end of 2012, and has been engaged in repeated share placing to finance its growth.
Zahn said: “We are excited about this growth opportunity in Berlin, our largest core+ region, i.e. regions with the most dynamic markets and strong rental growth expectations. With this transaction, we can scale our existing operating platform in Berlin and, by doing so, further improve our [funds from operations] profile.
“Additionally, we are pleased to welcome Blackstone as a shareholder in Deutsche Wohnen AG,” states Michael Zahn, CEO of Deutsche Wohnen AG.
Blackstone becomes one of three shareholders with a 5% stake, joining BlackRock and Sun Life Financial.
Kenneth Caplan, head of European real Estate at Blackstone, said: “Today’s announcement reflects a superb transaction for both Blackstone and Deutsche Wohnen. We are delighted that our Berlin multi-family portfolio is becoming part of Deutsche Wohnen and we are excited to become a shareholder of this market leading residential company with high quality properties.”