Cerberus sells German residential portfolio for €1.6bn(2)

Pirelli RE and Deutsche Bank have agreed to buy German property group BauBeCon from Cerberus, in a transaction valued at €1.6bn.

The real estate arms of Deutsche Bank and Italian conglomerate Pirelli have agreed to buy German residential property group BauBeCon from US alternative asset manager Cerberus Capital Management for €1.6 billion ($2.2 billion).

Pirelli RE will acquire a 40 percent share of BauBeCon, while RREEF, the private equity real estate arm of Deutsche Bank, will acquire the remaining 60 percent. Following the terms of the transaction, expected to close by the end of the month, Pirelli and RREEF will pay Cerberus €350 million in cash and assume €1.4 billion of debt.

The BauBeCon portfolio, which is largely residential-focused, is comprised of more than 27,000 residential units throughout German cities like Berlin, Hanover and Magdeburg. According to Pirelli, the portfolio has an average value of €960 per square metre.

Cerberus bought BauBeCon from a German labour union in 2005 and planned on taking it public, but reportedly cancelled the plans due to the portfolio’s disappointing returns.

In June, Pirelli had indicated that it was looking into a deal in Germany that would trump its €440 million acquisition of residential company Deutsche Grundvermoegen last year, citing Germany’s relatively cheap real estate market compared to other areas of Europe. Pirelli also worked with RREEF on that deal.

Pirelli said it expects the property’s prices to increase by about 3 percent annually over the next five years, including inflation, and its vacancy rate to decrease to about 5 percent.

The acquisition of BauBeCon “represents another step towards the creation of a vast residential platform which we believe will create value in the medium-long term,” said Carlo Puri Negri, Pirelli’s chief executive officer, in a statement. “This transaction will also help to accelerate development of Pirelli RE’s asset management activities and specialized services in Germany.”

To date investors including The Blackstone Group, Goldman Sachs, Fortress Investment Group, Morgan Stanley and Terra Firma have all been active in acquiring German residential properties on the basis that economic growth would allow many Germans to purchase their own homes or to afford higher rents.

(A version of this article previously appeared on our sister website, www.PrivateEquityRealEstate.com)