ANALYSIS: Benson Elliot's bet on broke German resi firm pays off

Three years after taking control of troubled German housing developer GWB, Benson Elliott has completed a turnaround and cashed in its stake.

Looking beyond the stigma of insolvency helped UK private equity firm Benson Elliot spy the potential in an insolvent German social housing developer in 2016 - promise which has now been realised with a €175 mln sale.

Benson Elliot has reaped the benefits of its 74.9% stake in Geraer Wohnungsbaugesellschaft (GWB) Elstertal, by divesting it to the state government of Gera, a city in the state of Thuringia, central Germany.

Following the successful sale of the stake in the communal housing developer, Joseph DeLeo, a senior partner at Benson Elliot, told PropertyEU why his firm opted to acquire an interest in GWB at a time when it was flat on its back, three years ago.

'As property values continued to increase in Germany’s prime markets, investors were looking to generate higher yields by seeking investments in secondary markets,' he says.

'Many of these locations were economically strong and stable with steady capital flow, such as multi-family residential, one of the most sought-after investment products in Europe and one where Benson Elliot has a multi-year successful track record.

'This expertise and confidence allowed us to look beyond the insolvency stigma of GWB’s mother company and focus on the underlying business opportunity.'

The GWB portfolio comprises 6,700 units, totalling 402,000 m2, across 330 buildings in the region.

Benson Elliot deduced GWB’s fundamentals were still strong despite its travails, and its presence in an attractive market meant that taking a stake in the German firm was actually a good business bet.

'The transaction offered secure cash flow streams from a diversified and stable tenant base, an experienced local management team and clear portfolio optimisation prospects,' explains DeLeo.

Multifamily growth
Driving the deal back in 2016 was an investing environment in which yields were getting squeezed and multifamily residential was emerging as an appealing investment option.

Fast forward to 2019 and Germany hosts Europe’s top destination for multifamily investment, the capital city Berlin, according to research by adviser Savills. If this trend continues, multifamily investing is on track to grow into the biggest real estate investment segment in Europe, the firm says.

Bringing GWB back to health and placing it on a sound footing following its fall into insolvency involved Benson Elliot refining the company’s portfolio and methods of doing business.

DeLeo explains: 'The business plan focused on optimising portfolio composition by disposing of commercially obsolete assets, introducing best-in-class leasing and operational management processes, refurbishing and leasing the core residential properties, and undertaking a comprehensive portfolio refinancing.

'The value-add programme went according to plan and was even implemented ahead of schedule. In light of the accelerated business plan implementation and attractive market conditions, a sale process was initiated in early 2019,' says DeLeo.

GWB is now majority-owned by a development fund of the public German bank, Thueringer Aufbaubank, named Thüringer Industriebeteiligungs.

Announcing the purchase on social media, the left-wing prime minister of Thuringia dipped into the lexicon of class conflict, telling followers: 'In Gera, we are withdrawing apartments from the speculators and bringing them back into public ownership. The negotiations have been successfully concluded.'

At Benson Elliot, they can savour a job well done. 'We are proud of having been able to unlock the company’s potential in close cooperation with the local management team and believe that GWB is well positioned for the future,' reflects DeLeo.

Benson Elliot was advised by Greenberg Traurig and VictoriaPartners. The purchaser received legal advice from McDermott Will & Emery.


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