The Hines European Value Fund has made its second investment in the Stuttgart, Germany, office market with the acquisition of the Karlshoehe Portfolio for more than $341 million (€300 million). The portfolio consists of 13 office buildings, including two towers, and totals more than 295,275 square feet.
The portfolio, located in the city’s CBD, is currently 98 percent occupied, mostly by Allianz and has served as Allianz Life Insurance’s headquarters since 1927. But Allianz has been gradually moving into new buildings in the surrounding area in recent years and will be developing a new campus at Stuttgart-Vaihingen to consolidate its Stuttgart inner-city locations. While maintaining close ties with Allianz as its key tenant now, Hines will be evaluating each piece of the portfolio to determine its best use. The international real estate firm stated it’s likely that will include refurbishment and re-leasing of office space and conversion and redevelopment of new space.
“Hines has a large existing portfolio in Stuttgart, with six assets in various sectors and submarkets across the risk spectrum from Core to Development, having invested in Stuttgart on behalf of both of Hines’ discretionary European funds, the Hines European Core Fund and the HEVF,” Emanuel Coskun, head of Hines’ Stuttgart office, said in a prepared statement. “Our local team has significant expertise in development, asset management and value creation and we are eager to create new value in the Karlshoehe Portfolio. We strongly believe in both the historical quality and future potential of this central neighborhood.”
Coskun said Hines looks forward to working with Allianz and city officials on improving the Karlshoehe quarter.
With the latest Stuttgart acquisition, the HEVF has made its sixth investment since December 2017. More than 50 percent of the fund’s $820 million investor equity commitments are now allocated to a diversified portfolio including office, retail, hotel, apartment and logistics in Germany, Denmark, Spain and the United Kingdom.
Strong market fundamentals
“The acquisition of the Karlshoehe Portfolio demonstrates HEVF’s strong belief in the Stuttgart market. The city attracts a highly diversified occupier base for office space, including the financial and insurance sectors, but also sophisticated technology bases for manufacturers, engineering and other industry corporations,” Paul White, HEVF fund manager, said in a prepared statement. “The fundamentals in Stuttgart are exceptionally strong even amongst the major German markets, with unmet demand, effectively no central Class A vacancy and a positive trajectory for rents. Likewise, for residential markets, Stuttgart continues to attract and retain more affluent office-using employees and is also experiencing the wider trend of increased appetite for more central urban living, leading apartment rents and prices upward.”
JLL’s fourth quarter 2018 Office Market Profile report for Stuttgart noted leasing in the office market was about 706,365 square feet—the lowest level since 2012, despite the demand for space.
“Due to the lack of availability of large areas of high-quality space, one-third of all take-ups is in development projects,” the report stated.
While new deliveries are expected in 2019 and 2020, 76 percent are already preleased, so there is little relief expected in the tight office market over the next few years.
Landesbank Baden-Württemberg (LBBW) served as the financing bank in the Hines transaction. Hines was legally supported by CMS, technically supported by REC Partners and tax due diligence was provided by EY. BNP Paribas Real Estate was the transaction advisor on behalf of the seller.
German office deals
Hines isn’t the only major commercial real estate player to invest in Stuttgart in the past year. In April, Investcorp teamed with Continuum Capital Investment Management GmbH to acquire Bürocampus Wangen, an office campus in Stuttgart, for about $98.8 million. The seller was BEOS Corporate Real Estate Fund Germany I, managed by BEOS. It was Investcorp’s first purchase in the German market. The campus has several mixed-use buildings, which total more than 500,000 square feet and house office, research and development, data and design space, as well as a restaurant and conference rooms.
Hines made another office purchase in Germany, teaming up with Ärzteversorgung Westfalen-Lippe in April to acquire Olympus Campus, an approximately 500,000-square-foot office building being constructed in Hamburg, Germany, from Campus Properties 1, a joint venture between Zech Group and Olympus. Under the deal, were responsible for completing the building. Hines served as the investment manager and is property manager of the 11-story building.
Image courtesy of Hines