German real estate investor and developer GBI Capital is building residential developments that contain hotels, student accommodations and senior-living housing — and share cultural spaces — all from their initial blueprints.

Executives said affordability is the major component of these new housing projects, known in German as “bezahlbares Wohnen,” or affordable housing.

On July 12, GBI Capital announced its latest project of this type, a mixed-use property in Hamburg, Germany.

Simon Behr, GBI Capital’s managing director, said the Hamburg project will “combine a new hotel-lifestyle brand, which will celebrate its German launch at this site, offices and 200 affordable [apartments] for students and seniors, both our own brand Smartments. Altogether, 253,000 square feet at an excellent location on the water. This will create a livable urban district.”

GBI Capital’s business model has evolved with changes to yields and guest requirements, Behr said, with concepts such as “smartments,” which are work-life spaces for professionals who do not want to be limited to stays of a certain length, even as long as six months.

The company recently finished a similar development in Hamburg in June, the 270,000-square-foot, mixed-use Hamburg-Hammerbrook development in partnership with real estate firm Nord Project, an associated real-estate company.

In the southern part of the city, Hamburg-Hammerbrook has 54 apartments and contains two hotels: a 281-room Premier Inn, which will open soon, and the 347-room Niu Yen, an independent hotel that has already opened.

Anja Bachmann, GBI Capital's head of development, said the first Hamburg property is a “promising model for the future, which we are realizing at more and more locations.”

“The challenging [COVID-19] period in particular has impressively shown that the combination of different uses is particularly important for lively and livable neighborhoods," she said. "This is how you realize attractive and also sustainable urban spaces, something that cities are placing more and more emphasis on. Hamburg-Hammerbrook is an impressive blueprint for such successful implementations.”

Several German cities have reached out to GBI Capital to develop similar concepts, Behr said.

“New projects will be adapted to specific needs. We buy bigger plots, not to build a monoculture but to provide different types of usage,” he said.

Many of the real estate segments that are needed in the cities are also offered by GBI Capital via its own brands, Behr said.

“We can then implement and operate these directly and quickly,” he added.

A major focus for the company and its investors is to provide necessary yield but to do so in line with environmental, social and governance requirements. Behr said these are changing constantly, most notably around the European Union’s 2021 Sustainable Finance Disclosure Regulations.

“Hotels and buildings have different reporting. How much water is being used? How far away are towels being washed, for instance. And it is about usage, not just the lifetime of a building but for a site’s continued use,” he said.

Behr said now investors are more interested in mixed-use projects that include hotels and residential housing. Different projects in the Hamburg development were bought by third parties before construction started in 2020.

Behr said GBI Capital is experienced and successful in funding investments in real estate, initially funding hotel properties in Germany, Austria and Switzerland. The firm has developed many stand-alone hotels and serviced-apartment properties and is owned by Moses Mendelssohn Stiftung, a nonprofit foundation that sponsors education and science in the field of European-Jewish history.

GBI Capital received the green light for the first of its affordable housing hotels in 2018 when it partnered with the Bavarian Chamber for Social Benefits & Pensions in a fund with an initial target volume of 500 million euros ($503.3 million). The organization is the Bavarian state ministry’s investment and pension authority and in German is known as Bayerische Versorgungskammer, or BVK.

GBI manages those properties on a long-term basis, Behr said.

“The fund was following a hotel sale to BVK, [which] asked to buy more hotels and other components in package deals. Yes, we could have done that, but after the first successful project, both parties realized the partnership in the form of a fund had many advantages for both,” Behr said.

GBI Capital sold the two hotels at the Hamburg project to investors: the Premier Inn to its operator Whitbread, and the Nui Yen, a brand created by Novum Hospitality, to BVK.

“There are different yields for different concepts. Hotel yields have gone down a little. Three years ago, they had a factor of 27 or 28, and now it is more likely to be 24. Construction costs are high, too, so having student and residential housing mixes it up,” Behr said.

Following the hotel sale to BVK, it asked GBI Capital to buy more hotels and other components in package deals, Behr said.

“Yes, we could have done that, but we want the best price, so there was no advantage for us in this. We thought how we could post profit and concluded that a fund operated by us with asset and investment management, with money funded by BVK, was the answer,” he said.

Behr said it can be difficult to find investment vehicles that want both the residential and commercial.

“They cannot divide them. Institutional capital has a challenging time with this, but that is changing,” he said, adding that those who did not change could end up being considered dinosaurs as social norms evolve around housing, work and the cost of living.

The German hotel market was one of the last European markets to lift COVID-19 restrictions, but Behr said German hotel occupancy has been quite good, even in second- and third-tier cities.

“It is not completely back to the level of 2019, but close," Behr said. “The market is coming back on track, and for us it is a nice situation in which to look to buy. There are not so many investors doing so, so we’re not going through bidding processes."

With construction costs staying high, Behr said many competitors cannot get sufficient leverage and realize sufficient yields.

“Development is expensive because of the risk, but we talk to every aspect of the supply chain and make individual contracts with them. Construction costs have risen perhaps 15% to 20%,” he said. “General contractors have to cover the risk with these price surcharges. In the case of a staggered individual award — always when trades are also needed — there are no such massive safety surcharges. This is how we achieve our calculated prices."

He aided a substantial number of GBI Capital’s partners move with the company from asset to asset.

“We pay them right, and they ask for the next project. That is working quite nicely, and with many projects postponed in the last couple of years, including some of our own, at the moment, far fewer real estate projects are being implemented. That's why the craft companies and suppliers of trades are actively approaching us again and asking for orders,” he said.

GBI Capital's upcoming projects include a development in the German city of Heidelberg with offices and a city campus.

“You have to be a partner with the cities,” Behr said. “Every city has its own concept.”

Housing remains an important topic in Germany, he said.

“Investors say we are at our peak level of rent. Therefore, apartments also are getting smaller," Behr said. "A four-room [apartment] used to have [1,290 to 1,400 square feet], and today it’s more like [969 square feet] because it’s no longer affordable otherwise. Also, the relatively recent Tiny House Movement, in which designers, architects and owners experiment with residences that simplify life and have a reduced level of carbon footprint, has had Germany as one of its principal markets."

Behr said many companies are unable to offer advantages in this sphere. GBI Capital develops these properties, too, before selling them off to investors.

“Their pricing would have to be much higher. In Hamburg, like in the other German cities, student accommodations are operated by a nonprofit, and internet, heating, water and furniture are included in rents,” he said.

He added GBI Capital is not only looking for prime spots for its "Smartments" apartment brand.

“Students are happy to be in destinations that have train and bike connections to city centers. This change is necessary for student housing, as otherwise rents would no longer be affordable for young people at universities,” he said.

GBI Capital is continuing traditional hotel development with companies such as Deutsche Hospitality, CitizenM, Motel One, B&B and Premier Inn, with which it has a strategic partnership agreement.

“We are doing some, but we are looking at what is working out, or not," Behr said. "In 2019, we saw a lot of hotels being offered by brokers with strange concepts and high prices in cities you’ve never heard of before, but those you are not seeing anymore.”

The company recently sold the 176-room Intercity Lübeck, which was bought by real estate investor Commerz Real. The Deutsche Hospitality-branded hotel is scheduled to open in 2023 at the northern German city’s main train station.

This spring, GBI Capital completed a development in Düsseldorf with three hotels. The 183,000-square-foot site at the city’s main railway station is home to three accommodation options: a Premier Inn, a Hampton by Hilton and an aparthotel Adina. The real estate project is GBI's largest project development to date and one of the largest hotel projects in Germany, with a total of 717 completed rooms.

Investment company DWS had already acquired the properties as a project development for the open-ended real estate mutual fund Grundbesitz Europa, with a purchase price of approximately 157 million euros.

In total, GBI Capital has sold 1,800 hotel rooms to investors in the first half of 2022.

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