Munich-based residential developer Isaria Wohnbau has recently undergone a rebranding and teamed up with Hamburg’s issuing house One Group. The company was formerly known as JK Wohnbau, a name which included the initials of founder Josef Kastenberger, who left the company about a year after the firm’s IPO in November 2010.
Isaria hit financial trouble after its 2010 listing but since Michael Haupt left Bouwfonds to join the company as chief executive in December 2011, has been recovering from serious losses that occurred following a period of heavy expenses.
In 2012 the company achieved a positive result, €1.2m (2011: €-12.6m). In the first quarter of 2013, the company’s earnings after tax were in the red at €-0.3m but still represented an improvement on the €-1.6m figure of the first quarter of 2012. The company reduced its expenditure by 50% in the first quarter of 2013 on a year-on-year basis. The repayment of €6.8m of debt contributed to the reduced expenditure.
About 40% of Isaria Wohnbau’s investors are foreign, including UK companies such as Fidelity and Rothschild. Nevertheless, it has become more difficult for the company to source financing. “The financing environment is not as it was 10 years ago,” says Haupt. Banks are only providing 60% to 80% financing facilities and it is difficult to gain financing through shareholders and the stock exchange due to the tougher economic environment. Working in joint ventures is one solution and Isaria also uses mezzanine structures. Haupt points out that these arrangements can be difficult and expensive, which is why Isaria has recently taken over One Group.
One Group specialises in public closed-end funds in which private investors can participate and receive fixed interest. The company’s latest fund has a fixed interest rate of 7% and a life span of four years.
The capital thus obtained will be used to support Isaria’s current development pipeline that includes a project in Karlsfeld, 12km north west of Munich, which has a volume of about €245m and another scheme in the Bogenhausen borough of the city with a volume of €100m.
Isaria specialises in big projects “not just developments with 20 or 30 units,” explains Haupt. The company is also planning to convert the former Siemens office building in Munich into flats, a project for which it is awaiting approval.
Another €170m project will be realised on the former site of the Diamalt AG in Munich’s Allach district. As space for development is limited due to Munich’s increasing population, residential sites are usually gained through redeveloping former industrial land and converting office buildings. Haupt points out, however, that, “only 80% of office buildings are suitable for conversion.”
Isaria is developing residential buildings at a plot on part of the site of Munich’s former airport where the Messegelände, the venue for the annual Expo Real property fair, is also located.
These developments will keep the company busy for a while and Isaria has not had to participate in the competitive sales process for residential plots for the past two years. During the past few years residential land prices have increased by more than 20% and Haupt believes the increases will continue but at a slower rate.
The strong demand for living space in Munich is not matched by supply and units in new housing schemes sell quickly. Munich, Isaria’s area of operation, has one of the most expensive residential property markets in Germany and flats are usually sold before construction starts. The developments are sold unit by unit to private individuals. “In the past we have also sold entire buildings to institutional investors”, says Haupt.
However, this is not the case at present as the high price of residential property ?has depressed yields to between 3% and 4%, too low to raise interest from institutional players.
While yields might remain low for a while, Haupt believes that stock market interest in German residential developers is increasing. Although the market has been weak in the past, the improvement of the past two to three years gives Haupt hope that in the future more German developers will become listed which will make it easier for foreign investors to gain a foothold in the market.
www.isaria-wohnbau.de
