Thursday, June 4, 2020

Attractive opportunities: Deutsche Wohnen strengthens construction activity outside of Berlin

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The real estate group Deutsche Wohnen wants to significantly push ahead with the construction of new apartments outside of Berlin.

The group is therefore buying a platform for project development and major real estate objects from Munich-based company Isaria Wohnbau AG for around 600 million euros, as Deutsche Wohnen announced on Wednesday. The Munich project developer is a holding company of the financial investor Lone Star. The purchase should be completed this year. A total of 2700 residential and commercial units are to be built.

Half of the projects are located in Munich, the rest in large cities such as Hamburg, Stuttgart and Frankfurt. Overall, the group plans to invest more than three billion euros in new residential, nursing and office properties in the coming years.

Deutsche Wohnen owns almost 170,000 apartments nationwide, including around 116,000 in the greater Berlin area. But building is becoming more expensive and space in Berlin is scarce. Other cities also offer attractive investment opportunities, a spokesman said.

Since February of this year, the capital has also had a rental cover that the housing and construction industry is fighting. According to this, rents for the next five years will initially be frozen at the level of June 2019 and may rise by a maximum of 1.3 percent annually from 2021. There has been a debate in the capital for years about steadily increasing rents and displacement. The group had therefore already announced last year that it would waive rent increases if this would mean that a resident would have to spend more than 30 percent of his income on rent.

This did not prevent the rental cover. As of February, the group had to reverse rent increases that Deutsche Wohnen made after June 18. Repayments for this time would not be due, emphasized Deutsche Wohnen boss Michael Zahn on Wednesday when the figures were presented. The share price of Deutsche Wohnen is today one third lower than before the start of the rent cover debate in Berlin.

“Even if we comply with the Berlin regulations, we remain fundamentally convinced that they are unconstitutional,” said Zahn on Wednesday, looking at the rental cover. The critics argue that construction activity in the capital will decrease significantly due to the rent cap.

Zahn, however, hardly sees any clear burdens on his own business. This is also ensured by the continued high demand for living space. “In 30 years, around 84 percent of the German population will live in cities,” Zahn estimated. Up to 400,000 apartments would currently have to be built in German cities every year.

The group was extremely satisfied with the past year. The value of all properties owned by Deutsche Wohnen rose by 1.4 billion to around 22.4 billion euros. Revenue from contract rents rose by 6.6 percent to more than 837 million euros. The company, however, recorded a dent in profits: the bottom line was that Deutsche Wohnen earned around 1.48 billion euros. Last year it was 1.89 billion euros.

To date, the corona crisis has had no significant impact on its own business, said Zahn. For private and commercial tenants – such as retailers or artisans – who are now experiencing payment difficulties, a fund in the amount of 30 million euros will be launched, he announced. The money is also intended to compensate service providers who take care of the real estate or are otherwise employed by the group and who face financial difficulties due to fewer orders.

In order to fill the pot, the share in the profit attributable to shareholders should be reduced. In this way, the waiver of rent by the group is to be financed if necessary. Tenants can already turn to the company if they are experiencing payment difficulties due to the corona crisis.

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