(Bloomberg) -- Vonovia SE is seeking to raise money with most of its portfolio of residential properties intact as an intensifying housing crunch in Germany sets the stage for higher rents.
To bridge a near-term financing gap, Germany’s largest landlord is targeting another €3 billion ($3.3 billion) in divestments in 2024, according to Chief Executive Officer Rolf Buch. The company is looking to unload care homes and commercial properties, while holding on to as much housing as possible, he said.
“There are some assets we’d want to sell anyway,” Buch said in an interview at the company’s headquarters in Bochum, referring to properties acquired as part of the 2021 acquisition of Deutsche Wohnen.
After a decade-long boom, the end of the cheap-money era has sparked turmoil across European real estate markets, especially for firms that borrowed heavily to expand portfolios. With bond markets all but closed to the sector, debt-laden landlords have few alternatives to selling assets at steep discounts to raise money.
Vonovia faces about €4.5 billion in loan repayments and bond maturities by the end of 2025, according to a company presentation. This year, the company has far exceeded its goal of raising €2 billion from selling properties.
Two deals for new buildings this year show that “the market is still difficult” for sellers, the CEO said. CBRE Investment Management bought around 2,500 apartments in Berlin, Munich and Frankfurt for a little over €900 million, just about covering Vonovia’s construction costs.
While there are some commercial assets that will remain earmarked for sale, the landlord will halt disposals of residential properties “as soon as valuations have bottomed out,” he said.
If the company — which owns almost half a million housing units in Germany — can navigate the crunch, Buch is betting that prospects will then start to improve as a halt in new construction paired with unrelenting demand pave the way for an end of Germany’s residential real estate slump.
“The construction crisis is going to get worse until at least 2025,” he said. Builders are only finishing ongoing projects and not adding new ones, while the sector faces “substantial uncertainty” as Chancellor Olaf Scholz’s administration grapples with a €60 billion budget shortfall, the CEO said.
Read More: Europe’s Great Housing Crisis Deepens Growth, Political Risks
Germany’s budget crisis also could mean that Vonovia loses out on state aid to upgrade older properties, shifting the burden of energy-efficiency investments to tenants. “If we don’t get this subsidy to pass on to tenants, rents will need to go up,” Buch said.
For tenants, the squeeze will already start to kick in next year. Due to German law, rents lag inflation and will rise more in 2024 than they did this year, he said.
That dynamic could help Vonovia bolster its finances and halt the slide in valuations, which led the company to report a net loss of €3.8 billion in the first nine months of 2023. Buch said that the current market is an opportunity for cash-flush buyers.
“They’re betting on buying the good stuff now,” he said, “For those who’ll have to put in at a later point, there’ll be nothing left.”
©2023 Bloomberg L.P.