YEAR IN REVIEW: Robust residential ticks investors’ boxes

Perhaps fewer ultra-large commercial real estate transactions completed in 2019, but at least the residential sector started to light up Europe. Robin Marriott takes stock.

The year 2019 was one in which the residential sector could start to look down its nose at retail and industrial. For the second year in a row, living space assets surpassed those other two asset classes for overall investment volume as the second-biggest category after offices.

CBRE said residential property deals were up 61% in Q3 compared with the third quarter of 2018, showing the upward trajectory of the asset class. The adviser observed that a ‘high volume of global capital’ was targeting the sector. Standout transactions included Heimstaden’s €1.4 bn acquisition of 536 residential properties in the Netherlands from Round Hill Capital.

Sander van den Heuvel from Round Hill’s investment team in the Netherlands summed up the attraction by saying his firm would keep investing in standing residential investments. ‘We think residential is a very stable and risk-averse asset class, where one can grow rents steadily in line with inflation.

Large parts of the portfolio we sold were social housing – which has stable and predictable cashflows.’ Further examples of residential deals in 2019 include municipal housing company Gewobag’s purchase of 5,800 apartments in the western and northern part of Berlin from Ado Properties. Gewobag is owned by the State of Berlin.

Elsewhere, DWS acquired a UK portfolio of 3,198 student beds for €647 mln from developer Vita Group, while Unite Group took over Liberty Living for €1.27 bn.

While residential as an asset class enjoyed a great run, geographically speaking, France had a strong year too, inevitably drawing favourable comparisons with Brexit-impaired UK volumes.

The UK plummeted while Korean capital flocked to Paris. Germany traded in line with 2018 volume, the highlight being Generali’s sale of the ‘Millennium’ mixed-use portfolio for €2.5 bn to Commerz Real. Meanwhile, Ireland, Italy and Sweden saw volumes increase.

The Nordics – and Norway in particular – are worth an extra mention for drawing non-domestic money. The Blackstone Group, incidentally, has been busy assembling an €8-€9 bn portfolio in Norway via over 75 transactions.

Also of note, offices in Porto have been a sweet spot on the European map with the likes of US investor Värde Partners acquiring iconic tower, Torre Burgo, for €43 mln.

Across Europe, although ultra-large real estate transactions were in shorter supply this year, several €1 bn-plus deals completed. These spanned the office, residential, retail, student accommodation and hospitality sector, as well as diversified portfolios. Merger and acquisition activity led to some large transactions such as Aroundtown’s acquisition of German’s TLG Immobilien and Blackstone’s €4.27 bn takeover of Canada’s Dream Global, whose assets are mainly located in Germany, the Netherlands and Austria.

In the debt and non-performing loans (NPLs) market, massive deals took place in a repeat of recent years as the great deleveraging process undertaken by banks and financial institutions since the 2008 Global Financial Crisis continues.

Some of these disposals are a mixed bag of corporate and SME loans with residential-backed mortgages or commercial real estate-backed debt. Examples include Pimco buying a book of 45,000 residential NPLs called Project Pillar from Eurobank in Greece for €2 bn; Goldman Sachs teaming up with CarVal on the €2.4 bn Project Omni portfolio from Rabobank in Ireland; Citi Bank taking on a €5.54 bn mixed portfolio called Project Chester from the UK Asset Resolution (UKAR) in the UK; and Apollo’s €1.2 bn Project Helix purchase agreement with Bank of Cyprus.

Deloitte said the European loan portfolio market had a quieter start to 2019 after a whopping €202 bn traded in 2018. Some €140 bn changed hands by October 2019 at still very strong levels. In this arena, common bidders on loan portfolios were CarVal, Citi, Cerberus, Davidson Kempner, Lone Star, Goldman Sachs, Värde Partners, Pimco, and Apollo Global Management.

Sellers have been Intesa Sanpaola, UniCredit and Banca MPS in Italy; Bankia, BBVA, Unicaja, Sabadell, Santander and CaixaBank in Spain; Novo Banco in Portugal; Eurobank, Alpha Bank, Piraeus and National Bank in Greece; the Bank of Cyprus; the UK Asset Resolution (UKAR) in the UK; and NAMA, Allied Irish Bank and Rabobank in Ireland.

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