Germany’s Domicil eyes residential market expansion following €250m debt deal

Insurer Die Bayerische has provided credit, alongside equity, to back the investor’s multifamily acquisition programme.

Munich-headquartered residential investor Domicil Real Estate Group has raised a mix of debt and equity capital from Bavarian insurance company Die Bayerische to fund the acquisition of apartment buildings across Germany, Real Estate Capital can reveal.

The insurer has provided a €250 million revolving credit facility and has taken a 5.4 percent stake in Domicil through a €10 million equity investment.

Domicil said the deal demonstrates that German residential real estate is viewed as a “safe haven” by investors and has become more attractive due to the coronavirus pandemic.

Holger Lueth, who became chief financial officer of Domicil in March, said the new capital will most likely fund the acquisition of three to five residential portfolios.

“Domicil buys residential portfolios in bulk and sells predominantly pre-let apartments at an affordable price per square metre to retail investors,” Lueth explained. “This accounts for around 80 percent of our sales.”

According to Lueth, there is strong demand from retail investors to own a stake in residential assets, due to Germany’s low rate of homeowners. A relatively small number of landlords dominate the German multifamily market, meaning retail investors have limited access to it.

He argued that the non-cyclical nature of the product makes it an attractive investment in times of crisis. “Germany is still a relatively stable economy with a particularly strong rental market,” said Lueth.

He added that German landlords have benefited from stable rent collections throughout the covid-19 crisis. For example, Berlin residential property fund Phoenix Spree Deutschland announced that it had collected 99.6 percent of residential rent in the first half of the year.

“If you want to put your money somewhere reasonably safe, then the German residential sector is probably your best bet at the moment,” Lueth added.

Residential transaction volume in Germany totalled €23.8 billion in the 12 months to the end of June 2020, up 77 percent year-on-year, according to real estate consultancy Savills.

Since 2014, Die Bayerische has provided around €640 million of debt to Domicil for the 4,000 properties that the investor has acquired and sold over the years.

Overall, the average loan-to-value of Domicil’s balance sheet stands at between 80 to 90 percent.

“Die Bayerische understands our business model and so is willing to accept higher LTVs,” said Lueth. “We would like to reduce this a little bit but it is debatable whether times like these are the right environment for strengthening our balance sheet with equity at the right valuation.”

Domicil’s average cost of debt is 3.8 percent. Lueth said he does not anticipate this changing significantly, with the covid-19 crisis having a minimal impact on interest rates for residential real estate transactions in the German market.