Goldman Sachs' managed Whitehall funds has begun moves to keep costs down for a recent portfolio acquisition in Germany.
According to the Financial Times Deutschland, New York-based Whitehall has written to subsidiaries of residential property company LEG-Verkauf outlining plans to cut the maintenance budget for the properties. The approved budget is for a cost reduction of €1 per square meter of residential space with immediate effect. Until now, says the report, management had been planning to invest an average of around €25 per square metre, above the sector average.
Whitehall funds acquired LEG in June this year from German state North Rhine-Westphalia in a deal that implied a company value of €3.4 billion ($4.9 billion). In order to sign the deal, Whitehall agreed to a “social charter” which places restrictions on strategies based on increasing rents or adding value. The charter also necessitates Whitehall to make certain periodic investments in the properties.
Whitehall has been an active investor in Germany. In 2001, it acquired a joint venture interest in GSW, a Berlin-based miltifamily company with a value of €2.1 billion. The acquisition of the 66,000 residential apartments provided the firm with a residential management platform to support future additions. That investment has a current internal rate of return of 31 percent following a refinancing of the portfoilio in 2005 according to a 2007 Whitehall Street Real Estate funds private placement memorandum.
PS See this month's issue of Private Equity Real Estate for a full profile of Whitehall Funds.