German State of Hesse Agrees to $1.3 Billion Sale Leaseback

Bloomberg - November 1, 2005

CommerzLeasing und Immobilien AG, the property leasing unit of Germany's No. 3 publicly traded bank, agreed to pay 1.07 billion euros ($1.3 billion) to buy and lease back German state-owned real estate.

The state of Hesse agreed to sell 18 properties including its finance and interior ministries, police stations and other offices, according to an e-mail today. The government will lease back the space for about 55.3 million euros annually (5.2% initial yield). The buildings encompass 396,700 square meters (4.27 million square feet) of rental space.

CommerzLeasing, which outbid a pool of predominantly non- German competitors, is financing the purchase with 1 billion euros in loans from Hypo Real Estate AG, according to the statement. The deal is subject to state parliamentary approval. Hesse is looking to real estate sales to free up funds.

EuroProperty News reports that the portfolio will be leased back by the state for up to 20 years. The portfolio, marketed by PricewaterhouseCoopers and CB Richard Ellis, is reportedly the first major one to be sold by a German state. Hamburg is currently marketing two portfolios while Hessen plans to sell 770 million eoros worth of assets next year.

Other states are expected to market property after such strong bidding for Hessen's assets. Hessen's recently issued 10-year Eurobond rated AA+ by Standard & Poor's offered a yield of 3.25%, or 1.5% less than the property yield on this transaction. Sphere: Related Content