DREF places first bond secured on German student housing

Deutsche Real Estate Funds (DREF) has launched a delayed and scaled-back €44m bond issue to fund student housing in a deal believed to be the first of its kind in Germany for the asset class. The bond has a five-year term and carries a coupon of 4.675%. It is senior secured mortgage-backed and has a Creditform investment grade rating of BBB.

Deutsche Real Estate Funds (DREF) has placed a €44m bond to fund student housing in a financing believed to be the first of its kind in Germany for the asset class.

The German residential specialist successfully placed the five-year, secured bond, with a coupon of 4.675%, at the second attempt. The first attempt, in late March, was to raise up to €80m at a lower guided coupon of 4.375%.  DREF then postponed the launch a week later stating that ‘a number of investors would prefer a slightly longer preparatory period’.

The issue has a Creditform investment grade rating of BBB and is listed on the Frankfurt Stock Exchange.

dref logo to useProceeds from the Deutscher Studenten Wohn Bond will finance the acquisition and refurbishment of five student residences in four German cities: Berlin, Bremen, Kiel and Stuttgart.

DREF had planned to use the finance to buy and refurbish eight student accommodation schemes in five German cities but said it would look at a private placement soon and had also arranged a €50m bank loan to cover other assets.

Internos Global Investors, the European investment manager run by Jos Short and Andrew Thornton which is making a push into ‘assets with beds’, took a 27% stake in DREF in February together with family office Somerston Capital.

Shaun Robinson, chief executive of Somerston Capital, said: “Student housing is a relatively immature market in Germany. I  look at the UK and the US  where student housing is a prime real estate asset and I’m looking to Germany to try and replicate that.

“There are not many student housing groups in Germany which puts us into a position where we can consolidate or start consolidating the student accommodation market in Germany with relatively little competition.”

Somerston also owns or advises on 47 Holiday Inn Express and one Hampton by Hilton hotel in the UK and a number of healthcare properties across Europe and the US. Its purchase of a stake in DREF earlier this year was its first deal in the German real estate market.

DREF said this week’s bond issue was taken up by major German institutional investors and, due to demand, a private placement would be planned in the coming months.

“The German student housing market needs private investments. The supply gap and refurbishment bottleneck of student accommodation cannot be resolved with public funding alone,” said Felix Bauer, chief executive of DREF Advisor.

“We have now shown that these investments can also be funded via the capital market in Germany, if only in the institutional segment.” DREF has originally hoped to market the bond to retail as well as institutional investors.