April 5, 2012 / 6:01 PM / 5 years ago

DEALTALK-Germany to sell 12,000 flats in bumper property deal

* Set to be largest German real estate deal so far this year

* Government to attach strict social conditions to sale

* Assets valued at about 1.7 bln euros

* Non-binding offers sought by April 16 - source

By Kathrin Jones and Matthias Sobolewski

FRANKFURT, April 5 (Reuters) - Germany's planned sale of 12,000 flats and some commercial properties is set to be the country's largest real estate deal so far this year as the stable market lures investors seeking a safe haven.

"The list of parties interested in TLG should be long," a person close to the deal, estimated to be worth at least 1.7 billion euros ($2.22 billion), told Reuters.

"The German property market is rock solid and there is a lot of foreign money looking for investments," said the person, who declined to be identified because the process is confidential.

International investors are vying for property in Germany, which has not seen boom-and-bust prices like in Spain or Ireland, but stable increases in property values in the last couple of years.

U.S. private equity firms Lone Star [LS.UL] and Oaktree[OAKCP.UL] had looked at TLG Immobilien, the company holding the property, during the first sale attempt in 2008 that was then cancelled due to the global financial crisis.

Helge Scheunemann, head of research for Germany at real estate company Jones Lang Lasalle, estimates that the share of investments coming from foreign investors in Germany might rise to 60 percent this year from 50 percent in 2011.

The flats the German government is putting up for sale have stable rental income and a low vacancy rate of only 3 percent.

Including the 300 commercial properties, the portfolio is worth about 1.7 billion euros ($2.2 billion), according to TLG Immobilien's 2010 annual report.

Any investor will have to pay a premium over that value. In February, a group led by Patrizia Immobilien (P1ZGn.DE) paid 1.4 billion euros for about 22,000 flats from Germany's biggest public-sector bank LBBW [LBBW.UL]. [ID:nL5E8DE0CY]

Barclay's Capital (BARC.L), which is managing the sale, has asked for non-binding offers by April 16 and plans to get indicative offers by June.

Among potential bidders within Germany, only GSW GIBG.DE has ruled out bidding for TLG. Deutsche Wohnen (DWNG.DE) Chief Executive Michael Zahn is looking for takeover targets, as is Patrizia Immobilien.

LOCUSTS

German Finance Minister Wolfgang Schaeuble aims to finalise the sale of the assets - all located in eastern Germany - by the end of this year.

The deal will be split in two tranches, one with the flats, the other with the commercial properties, which include offices, shopping centres and nursing homes. Any bidder may bid for one or for both tranches.

Buyers will have to agree to protect tenants' rights - an issue given a lot of weight in German political decision-making - refurbish flats regularly and will be prohibited from turning them into more profitable luxury apartments.

Real estate companies can take a substantial hit from disputes with tenants in Germany. Gagfah GFJG.DE, majority-owned by U.S. investor Fortress, lost half its value on the stock market due to a billion-euro lawsuit last year.

The TLG deal also has potential for controversy because of expected bids by private equity firms, famously called "locusts" by former social democratic party SPD's chief Franz Muentefering.

The opposition in the German parliament, comprised of the SPD, the Green Party and the Left Party are all highly critical of private equity investors and are likely to make them an issue ahead of the 2013 parliamentary elections.

But the German government cannot exclude private equity companies from bidding because of European Union rules.

Private equity has a track record of investing in German real estate. Goldman Sachs (GS.N), Cerberus CBS.UL and Goldman advised-Whitehall Funds held 40 percent of GSW Immobilien GIBG.DE until they started reducing their stake last year.

($1 = 0.7623 euros)

(Writing By Peter Dinkloh; Editing by Erica Billingham)

((peter.dinkloh@thomsonreuters.com)(+49 69 7565 1345)(Reuters Messaging: peter.dinkloh.thomsonreuters.com@thomsonreuters.net)) Keywords: GERMANY/TLG

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