The CEO of ADO Properties, the Berlin-focused residential company planning a merger with Adler Real Estate, says he expects the city’s controversial rent control law to be overturned within 18 months.
Speaking to PropertyEU this month, ADO’s Thierry Beaudemoulin said: ‘Our view is that we will have to apply this law for 12-18 months, and after that it will be cancelled and Berlin will revert to German law.’
Last week, Germany’s CDU/CSU and FDP political parties said they will file a constitutional complaint with the Federal Supreme Court in the next few weeks against the ‘Mietendeckel’ or rent price cap. Its opponents say the cap is unconstitutional.
Berlin State Parliament passed the Mietendeckelgesetz on 30 January. From this month it freezes or lowers rents on re-lettings of apartments and in November will do the same for current leases, affecting more than 1.5 million apartments in a city of approximately 3.75 million inhabitants.
In common with other landlords, Beaudemoulin said that while the law is in force the merged company would not spend any capex on its existing Berlin portfolio. Instead the merged group - which will be called Adler Real Estate and which would have an €8.6 bn, pan-German residential portfolio - would limit its focus in Berlin to new building which is exempt from the cap.
‘In Berlin...we will have a bit less than 20,000 existing units and a pipeline of 1,000. We will focus on the new development pipeline. For the existing stock we will not be able to increase the rent and so it will not be possible to allocate any cap ex to improving it or bringing additional services to tenants.’
He said the Berlin component would represent about 50% of the merged Adler portfolio’s existing residential stock, but approximately one-third by rental income.
The Berlin pipeline and future development expansion in Germany’s other top seven cities would be secured by taking control of German developer Consus, which ADO and Adler plan to acquire following their proposed merger. ADO has bought a 22.18% stake in Consus. Consus’s 15,000-strong development pipeline has an estimated GDV of €10 bn.
However, a number of ADO shareholders have pushed back against the merger with Adler, claiming it is bad for ADO minority shareholders who were not consulted. Union Investment, Canada’s Timbercreek Investment Management, Janus Henderson Group and Sarasin & Partners have all voiced opposition according to Bloomberg.
Timbercreek owns 1% of ADO stock and Union Invest 5%. Timbercreek says the merged company will be highly-leveraged and will no longer have a pure Berlin focus. Janus Henderson said it sold its ADO shares after the merger announcement.
Bondholders to ADO Properties’ biggest shareholder, Israel-based ADO Group, will require full repayment of an Israeli circa $300 mln bond if the merger goes ahead, Bloomberg reported.
Adler has since issued a statement that says both its financing banks and its bondholders ‘are supportive of the transaction and have confirmed that they would like to continue to finance the transaction after the takeover.’
Some - but not all - have waived change of ownership clauses. Adler added: ‘We expect this figure to further grow based on ongoing discussions.’
ADO Properties has acceptances of 52% from Adler shareholders. The voluntary tender period for other Adler shareholders ends on 6 March.