Brookfield Shores Up Struggling German Resi Bet With €57M In New Capital

Brookfield has put up €57M (£49M, $62M) in new capital to cover future costs on a €424M German residential portfolio that has struggled to increase occupancy since it was bought in 2021. 

In a call with bondholders about buying €318M of debt secured against a portfolio of nearly 6,300 apartments in northwest Germany, loan servicer Mount Street said that Brookfield had put up new equity to cover the debt interest payments. It also said Brookfield would make additional capital expenditures to refurbish properties, then lease empty units. 

When Brookfield bought the portfolio from German private property companies Degag and Northeimer in 2021, it was 33% vacant. That has now risen to 42%.

Bondholders were told that soon after Brookfield bought the portfolio, it realised that it would be unable to refurbish and lease up units as fast as expected because of the ongoing impacts of the pandemic, rising construction costs and labour shortages. 

The amount that Brookfield required for capital expenditure has risen from an estimated €76M to an estimated €134M, a separate report to bondholders said. 

Brookfield is also putting up money to pay debt service costs. Rental income has not risen as fast as anticipated, and interest rate rises mean that interest payments have grown from €1.5M to €3.5M a quarter. Rental income from the portfolio is €18.4M a quarter.

Per the presentation to bondholders, Brookfield is committed to the investment, as evidenced by the extra equity committed and the fact it bought out the 10% stake in the portfolio that was retained by the seller in the original 2021 transaction. 

The seller was also managing the process of refurbishing apartments on behalf of Brookfield but has now been replaced by MVGM, a German residential specialist. 

Bondholders were told the pace of refurbishing and leasing apartments will now pick up, with rents rising on those units finding tenants. The loan servicer said its business plan called for the portfolio being 90% leased and rental income at €35M by the end of 2024.

The loan matures in 2026, and an interest rate hedge capping the loan margin at 2% expires in 2024.