Germany’s financial regulator is probing share dealing in a property company controlled by Fortress, the US private equity investor, which is the subject of an anticipated legal dispute.
Gagfah, Germany’s largest publicly listed owner of residential property, may be sued by the city of Dresden, where Gagfah has its largest stock of housing, over alleged breaches of pledges made when it bought 45,000 homes from city authorities in a €1.7bn deal. Dresden’s city council is due to decide on Thursday whether to proceed against Gagfah.
About a month before Gagfah announced in early March that it might be the subject of a suit from Dresden, the company said William Brennan, its chief executive, had sold €4.66m ($6.6m) worth of shares in the company at a price per share of €7.50.
BaFin, the German regulator, is to carry out a routine inquiry into dealing in Gagfah shares, a spokesman said on Wednesday. The regulator could then decide to launch a formal inquiry or shelve its probe – one of about 1,000 carried out each year, according to BaFin.
Speaking on a conference call with analysts to discuss Gagfah’s annual results on Wednesday, Mr Brennan said his sale of shares related to share options that vested in December.
Gagfah spoke to BaFin on Wednesday following a press report that he was being investigated for insider dealing, Mr Brennan said.
Mr Brennan added that BaFin had said there was a “routine investigation . . . there was no special investigation under way”.
Mr Brennan also said Gagfah had “not been formally notified of the amount of the substance of any potential claim” by Dresden.
Shares in Gagfah, which reached €8.95 in mid-February, their highest level in two years, fell after revelations of the Dresden dispute and slumped by a further 10 per cent on Wednesday, to stand at €5.73.
Gagfah, which is 60 per cent owned by Fortress, owns 158,000 homes in Germany, of which about 38,000 are in Dresden, with some of the original portfolio already having been sold.
Fortress was one of a clutch of US financial investors that snapped up residential property portfolios in Germany in the last decade. For many, the deals have not been as lucrative as expected. German tenants have proved relatively unwilling to buy their homes, limiting many companies’ returns from what they hoped would be widespread “privatisations” of parts of their portfolios.
Companies have also found it difficult to juggle extracting returns from their investments while servicing debts and keeping up repairs and maintenance on the properties, which are usually subject to strict agreements with the former public sector owners.