Whitehall Funds Adds to German Holdings with $2.4B Office Buy

Whitehall Street Real Estate Funds is the latest U.S. investor to see opportunity in the Germany’s improving, if challenging, commercial real estate climate.

Allianz disclosed today that Whitehall Funds, an affiliate of The Goldman Sachs Group Inc., has acquired a portfolio of 190 office buildings for 1.7 billion Euros, or about $2.4 billion. Whitehall Funds’ move follows an even larger buy from Allianz this year. In May, three Whitehall Funds affiliates paid an Allianz affiliate about $3.3 billion for a 27-property German portfolio.

Other U.S. players are spending big in Germany. Earlier this year, an entity co-owned by Morgan Stanley paid $3.5 billion for 53 office portfolios. In September, GE Real Estate brought the value of its German holdings to $1.7 billion when it bought a $503 million mixed-use portfolio in Dusseldorf and a 118,000-square-foot office building in Hamburg for $34 million.

Representatives of Whitehall Funds could not immediately be reached for comment, but the investors see significant growth potential in the portfolio, suggested Marcus Lemli, an international director for Jones Lang LaSalle Inc. who advised Allianz in the deal.

The properties have a vacancy rate of approximately 25 percent, and Whitehall Funds expects to add value by increasing occupancy and raising rents as leases roll during the next few years, Lemli explained.

In this way, Whitehall Funds’ strategy amounts to a departure from the recent strategies of many German institutional investors, which is to buy and hold properties rather than improving performance through asset management.

Although the former Allianz portfolio and many other assets offer growth potential, investing in Germany has recently become more challenging, Lemli contended. “Really the trick is to find properties that have good ... cap rates and present growth opportunities,” he said. Since this summer, cap rates for office properties have risen about 25 to 50 basis points, even as Germany’s economy is exhibiting healthy growth that is nudging rents upward, he noted. The German parliament’s authorization of REIT structures prompted several major transactions earlier this year. But since then, Lemli said, “”REITs have not taken off.”


source: commercialpropertynews.com