MIPIM 2015: Concentration in the German financialized housing sector

While inhabitants in Spain are facing a new wave of mortgage sales to private equity funds like Blackstone, a current main trend in the German residential property sector is the concentration of housing capital in a few listed joint stock companies. Most of them – and also their big shareholders -are present at MIPIM 2015, looking for more investors or foropportunities to buy up more assets. 

As local tenant organizers report these joint stock companies are mainly the product of private equity funds exiting their financial investments in former social housing stocks. Pushed by the huge demand of transnational institutional investors for comparatively ‘well-performing’ assets the stock exchange currently is the dominant source of capital for the ongoing wave of residential asset transactions. Among major shareholders are still oriavte equity funds and global asset manager like Blackrock or Sunlife/MFS who are invested into Greman housing stoks with more that a bilion Euro. But also state linked actors like the Abu Dhabi sovereign fund ADIA, the national bank of Norway or the Dutch pension fund APG are playing a prominent role as share holders. However, it is a main goal of the companies to reach a large free float of shares in order to reach the DAX standard, which will be the entrance to even more global capital. Besides shares also a lot of corporate bonds and convertible bonds offer opportunities for financial investments into Greman rental housing companies.

The process of going public is combined with a fast process of mergers and fusions. According to data collected by a tenants organizations’ project  today about 1 million rental housing units in Germany are under direct control of financial investors, 850.000 of these units are part of the portfolio of only 9 specialized joint stock housing companies. They hold a total capital of over 60 billion Euro. The no. 1 – Deutsche Annington (a former investment of UK TerraFirma REPE funds) – after its fusion with the former “GAGFAH” (formerly under control of the US-based funds manager “Fortress”, originally public owners) will control 350.000 housing units and become the second largest real estate company in Europe. Through this it will build strong political influence, tenants organizers expect.

In contrast to financial management of real estate private equity after 2007, housing companies are now also investing cheap money and public subsidies into modernisations, which according to German law legimate heavy rent increases. Local tenants organizations reported that  in the southern and more attractive areas of Dortmund poor tenants are exchanged for wealthier ones. Annington offers alternative cheaper housing in the poorer northern parts of the city. This method of social segregation is a typical consequence of the “portfolio strategy” which sets up different economic targets for local housing stock: some get upgraded, others divested.

Tenants organizers believe that the financialized housing sector will challenge tenants and their organizations for a long time. One response could be a corporation-focused organization of tenants of the huge landlords. In the Annington case the big German Tenants Union DMB has started to focus on this landlord, as has the trade union Verdi, which is trying out new methods to organize the employees of these landlords. More than the half of the Annington employees –especially so called “object servants” work on contracts which do not follow the collective labor agreement for the real estate sector.

Last year a group of tenants and supporters protested in front of the shareholder assembly of the former state owned LEG NRW, which owns nearly 100.000 housing units and which is trying to increase rents beyond the legal boundaries. Activists who owned some shares also spoke at the assembly, pointing out that the market valuation of the property measured in the financial reports is based on ficticious expectations of rent increases and is therefore itself ficticious. This tactic of critical shareholder interventions may be followed up this year.

At the same time collective legal rights of tenants is becoming an important issue, for example regarding the calculation of fees by the landlord. As local organizations report,  landlords who previously outsourced services, are now trying to get more control of the whole chain of production which creates surplus. In the case of huge landlords, fee increases of a few Euros per flat can become an important income for the trust.

“The current  bear market cannot last for ever. Sooner or later the bubble will burst”, a local organizer says. “Also for this reason Germany needs a new legal framework for non-profit housing as the primary alternative to the financial market.” But until then the big landlords are creating the field for the development of new ways of tenants’ and workers’ syndicalism.