As part of its programme to reduce public debt ahead of European Monetary Union, the German government is planning to step up its programme of property disposals. Following the embarrassing public spat between the government and the Bundesbank over the revaluation of Germany’s gold reserves, property sales are seen as a safer – albeit slower – way of reducing borrowings.
The potential scale of the sell-off is vast. Public sector bodies like Deutsche Bahn and the post office have large holdings of commercial and residential property; the railway company’s portfolio is put at DM 14bn.
There are also other holdings, like the defence land being vacated as NATO forces scale down their presence. This reverts to federal, state and local government landlords. And, the federal government, whose property portfolio has been put at DM 5bn, is known to be looking at large-scale sale-and-leasebacks to raise capital.
These would be along the lines of those pioneered in the UK, where housing owned by the Ministry of Defence was sold off, to be followed by the large office portfolios held by the Department of Social Security and the Inland Revenue.
In Germany, residential property potentially figures prominently in future disposals. The government itself has another 110,000 houses and flats, and there are some 8.2m subsidised apartments held by a multitude of organisations.
The latter are now considering shifting out of this sector, which is yielding 4%-5% pa and moving into equities, which offer higher returns. Bankers Trust estimates that there could be some 500,000 units sold off annually over the next few years.
American and Japanese investment banks, who have been in the forefront of the bidding for UK sell-offs, are likely to make the running in Germany as well. Not only do they have the scale of capital needed, but they also see opportunities to apply securitisation techniques. For example, a consortium led by Nomura bought the UK Ministry of Defence housing, funding the purchase with a £903m bond issue.
And Bankers Trust was among the bidders for a recent German property privatisation. In May, the government sold off Deutschbau, a property company with 38,000 residential units.
It was bought for DM 2bn by a joint venture between Veba Immobilien and Deutsche Bank. Veba, with a 130,000-strong portfolio of its own, is one of the few domestic bodies able to take on such a large slice.
Some of the giant German open-ended property funds are looking at the residential sector. They have the financial resources to handle big transactions. However, investments on this scale only make sense if they can be leveraged, and the funds are limited in their use of debt. Moreover, they would face the problem of estate management.
