If anyone still doubts if European commercial property yields will fall further it’s certainly not Oxford Properties and New York-based Madison who last month signed to pay €1.1bn for Berlin’s Sony Centre, near double its 2010 price. Canadian/US weight of capital outweighed Korean, it seems.
You can’t get much more iconic in Germany than this asset. At 112,000 sqm it is a mixed-use – but mostly office – complex, smack in the centre of Potsdamer Platz, the heart of Berlin’s Mitte district. It spans eight individual buildings, including the Bahn Tower, with 85,000 sqm of prime office space, 20,000 sqm of retail and leisure and 67 residential units.
The cap rate for the deal was round about 3.5%, BIE information indicates. But the fact is that this is just the start of Oxford’s build-out in Berlin, which the firm is adding to a triumvirate of targets in Europe. Paul Brundage, senior MD for Europe, in a release: “This acquisition is a meaningful step toward achieving our stated strategy of reaching C$5bn (€3.4bn) of assets under management in continental Europe by 2020, focusing on Berlin and Paris. This strategy is backed up by our longstanding commitment to the central London office, high-street retail and build-to-rent residential sectors.” The acquisition in Berlin, “gives Oxford the scale to build a platform in Berlin with an ‘on-the-ground’ team.”
Oxford recently announced the €500m acquisition of the Window office tower in Paris La Defense. Adding the Berlin deal brings its continental European assets to some €2.3bn – about €1bn shy of its near-term objective in Europe in gross terms. The company is of course the real estate investment arm of the Ontario Municipal Employees Retirement System (OMERS) – a public sector workers pension manager, which runs $85.2bn across all asset classes and has a benchmark return of 7.9%. OMERS easily exceeded this last year at 10.3% net of all expenses, but missed in 2015 at 6.7%.
At a cap rate around 3.5%, the Sony Center clearly needs to be heavily leveraged to get anywhere near that target – absent significant capital growth, that is. Hines bought the Sony Center in 2010 from Morgan Stanley on behalf of Korea’s National Pension Service for €585m, and held a minority position in it until the sale. The buyers, BIE information indicates, are somewhere around 65% leveraged in the deal.
This is clearly, then, a weight of capital story; heavy demand from Canadian public and US-based private sector capital outweighing the South Korean need for assets outside the country, which you would think would be fairly acute right about now considering the lunacy in the North.
The involvement of New York-based Madison Real Estate marks the second time the company has been a major capital provider, and also the second time with Oxford. The firm, started and still run by Ronald Dickerman – and out of Germany by the highly able Michael Siefert– was until quite recently coming into deals as a secondary equity provider, preferably those – a few years ago it was Norway – where equity, often from LP’s, was sweating and had all but disappeared. Madison picked up distressed positions in the capital stack at low prices, its speciality for years.
This was, sort of, the strategy with the London Paternoster deal last December, although nothing seems to have been distressed. It came into that transaction for Stg200m, taking 50% for an asset package that Oxford had amassed over the years since 2012. The asset of course is also iconic: King Edward Court, home of the London Stock Exchange and St Martin’s Court, CBRE’s head office in the City of London.
It looks as if both companies are comfortable with the relationship now; Oxford has a clear mandate from Toronto, mainly because Europe is cheap in north American terms, while Madison still has some allocation left for a $1.4bn fund it raised last year and, for the same reason, is mandated to move the capital out into Europe with alacrity. Madison has a lower participation in Sony Center than in London. But you would expect that, considering the price.