NEUWOGES points out that BAVARIA paid a cash amount of EUR […] for the buildings plus EUR […] as capitalised rent for the land. It further recalls that the two valuations, carried out in 1997 and 2007, estimated the value of the property as a whole (value of land and buildings combined) at EUR […] and EUR […] respectively. Finally, NEUWOGES recalls that each valuation estimated not only the total value of the property, but also the separate values of the land (1997 valuation: EUR […]; 2007 valuation: EUR […]) and of the buildings (1997 valuation: EUR […]; 2007 valuation: EUR […]).

Asserting that the 1997 valuation represents a realistic estimate of the property’s value at the relevant time (1997/98), NEUWOGES argues that only the price actually paid by BAVARIA for the buildings (rather than the price for the buildings plus the capitalised land rent) should be taken into account for comparison purposes. Accordingly, NEUWOGES asserts that it received EUR […] less than the market price at the relevant time (1997/98). It further argues that, even if, for the sake of argument, the debt write-off pursuant to the Inherited Debt-Support Law is added to the sales price, the price paid by BAVARIA would still remain 16 % lower than even the lower 2007 valuation. According to NEUWOGES, the price paid by BAVARIA was far below the market price, so that no MEO would have agreed to sell at this price.

NEUWOGES submits that, for the purpose of comparing the price paid by BAVARIA with the prices calculated in the two valuations of 1997 and 2007 (which estimated the value of full ownership of the buildings and land), the capitalised rent for the first 30 years should not be taken into account. As this rent is paid for the right to use the land for 75 years, rather than for the ownership of the land, it cannot be relied on for the purpose of comparing the price paid for the buildings by BAVARIA and one or other of those estimated in the two valuations.

• The debt write-off pursuant to the Inherited Debt Support Law is a benefit conferred on NEUWOGES by a third party (the Bank for Reconstruction), which has no connection with the buyer. There is no reason why a vendor should accept a price below the market price simply because the transaction will result in some additional benefits granted by a third party.

• BAVARIA did not assume any responsibilities under the Inherited Debt Support Law that were previously incumbent on NEUWOGES and that would merit remuneration in the form of a lower sale price. While BAVARIA did formally assume the obligation to attempt to sell a number of apartments to the tenants, it charged NEUWOGES with actually carrying out the privatisation at NEUWOGES’ own expense, and hence did not assume any real responsibility. Nor was BAVARIA at risk of being held liable if the privatisation efforts were to fail.

• Because the debt write-off was linked to NEUWOGES’ fulfilling its obligation to privatise 15 % of its apartments and the BAVARIA deal satisfied only 20 % of the total privatisation obligation, a proportional allocation of the debt write-off facilitated by the deal is not realistically (as opposed to mathematically) possible. In other words: if NEUWOGES had not fulfilled its total privatisation obligation, it would not have received any benefit under the Inherited Debt Support Law from the BAVARIA deal.

• At most, the sale-and-lease-back transaction meant that NEUWOGES had to transfer only a comparatively low percentage (45 %, rather than 50 % or 55 %) of the revenue to the inherited debt relief fund, whereas not concluding the contract and searching for an alternative buyer would have involved the risk of having to divert a larger share of the sales revenue into the fund.

• In any event, NEUWOGES claims to have eventually fulfilled its privatisation obligation at a rate of 165 %, meaning that even without the BAVARIA deal the debt write-off would have been confirmed.

NEUWOGES further submits that it did not benefit from the modernisation carried out by BAVARIA, as BAVARIA was the owner of the buildings and thus the only beneficiary of the modernisation.

NEUWOGES asserts that the limited bidding process carried out in 1997 cannot be invoked as an indication that the price paid by BAVARIA was in actual fact the market price. It submits that the bidding process was not open, transparent, unconditional and non-discriminatory, and is therefore insufficient for establishing the market value.

• the low calculated risk of loss of rent of only […]% of the net rent income imposes on NEUWOGES the financial risk of not being able to achieve an occupancy rate of at least […]%;

• the indexation of the fixed leasing payment by […]% per year means that NEUWOGES bears the financial risk of not being able to impose annual rent increases corresponding to at least this rate;

• since the costs are not independently indexed, NEUWOGES bears the financial risk of any increase in administration and maintenance costs, and only a rent increase of over […]% per year could conceivably offset an increase in costs;

• these financial risks are significant in the light of the long, 30-year, duration.

NEUWOGES argues that it was clear from the outset that these risks would materialise, leading to heavy losses, and that accordingly no MEO would have concluded the contract. According to NEUWOGES, a MEO would conclude only a contract that was profitable or that at least did not result in losses. NEUWOGES asserts that the general management contract could have been expected to result in a profit only if it had been reasonable to expect that the high occupancy rate, annual rent increases of […]% and stable costs could actually be achieved. According to NEUWOGES it was, however, already clear when the contract was concluded that an average occupancy rate of […]% would not be achievable, that a rent increase of at least […]% per year would be impossible, and that the administration and maintenance costs would inevitably increase over the duration of the contract. To support these assertions, NEUWOGES points to both the projected population decline and the real-estate market in Neubrandenburg, maintaining that, in the light of these factors, the contract was bound to result in a loss. Since Neubrandenburg’s population was in decline even before the contracts at issue were concluded, there was a significant oversupply of apartments from at least 1995 onwards, with the unattractive prefabricated apartment blocks, which are the subject of the contract, being most affected by vacancies and low rents.

• Since no evidence was presented that the economic situation and outlook of these cities (in which the properties to which the comparison contracts relate are located) were sufficiently similar to those of Neubrandenburg, it cannot be assumed that the contracts as a whole are comparable.

• The indexation of the leasing payment in the comparison contracts differs significantly from that in the general management contract (i.e. 1,0-1,5 %).

• None of the individual comparison contracts is suitable for comparison because the circumstances are different in each case ([…]: less onerous maintenance obligations; […]: commercial properties rather than apartments, which had a vacancy rate of 0 % at the conclusion of the contract; […]: the properties were located in a growth region).

Rather than proving the market-conformity of the general management contract, NEUWOGES submits that the comparison contracts demonstrate precisely its non-conformity, since they include less onerous provisions despite relating to property with a better economic outlook.

• There was intense political pressure to promote both the modernisation and privatisation of apartments owned by local housing companies in the former East Germany.

• By modernising and privatising apartments, the city of Neubrandenburg hoped to counteract the ongoing decrease in population numbers.

• Concluding the general management contract, in combination with the global lump-sum contract, maintained a high level of investment in Neubrandenburg, a fall in which would have had significant consequences for the local unemployment rate.

1. (a)

   the cash price paid by BAVARIA (EUR […]);

2. (b)

   the fee paid for the privatisation efforts (EUR […]);

3. (c)

   the profits earned from the modernisation (EUR […]);

4. (d)

   the cash value of the ground rent after 2029 (EUR […], after discounting).

Based on these considerations, it appears that the expectations expressed by NEUWOGES in its original calculation cannot be said to have been unreasonable. Accordingly, in light of the evidence presented, it was reasonable for NEUWOGES to expect to make a profit within the framework of the general management contract. If the nominal expected profits are discounted to the relevant time (early 1998), it turns out that NEUWOGES acted on the basis of assuming that the general management contract had a cash value of EUR […].

In attempting to compare the value of the sale-and-lease-back transaction for NEUWOGES and the benefits it could have obtained from an outright sale, the crucial question is what price NEUWOGES could have obtained from a ‘normal’ sale. The two valuations, from 1997 and 2007, have a certain role to play in this context.

The Commission considers that, since the 2007 valuation was prepared only after the sale-and-lease-back transaction took place, it cannot be relied upon for determining the value of the property in 1997, as known to NEUWOGES at the time. NEUWOGES could not, then, have based its decision on whether or not to engage in the sale-and-lease-back transaction with BAVARIA on the retrospective 2007 valuation.

1. (a)

   Rent

   The 1997 valuation assumes rent levels of between EUR […] and EUR […] per m². At the same time, the first rent table for the City of Neubrandenburg, valid from 1 January 1998 onward and based on 1997 data, indicated average rent levels for modernised apartments of between EUR 3,90 and EUR 4,38 per m². NEUWOGES, as a large real-estate company active in Neubrandenburg, would necessarily have been aware of the average rent levels in the city, and ought therefore to have based its evaluation of the property on this data. Indeed, the sale-and-lease-back contract envisaged average rent levels of EUR […] per m² for the period after modernisation (i.e. from 1999 onwards and thus two years later than the data underlying the first rent table). This figure was in line with the rent table.

2. (b)

   Modernisation costs

   While the 1997 valuation was carried out in the spring of 1997 and assumed total modernisation costs of EUR […], NEUWOGES’ management indicated in a letter to BAVARIA written at the same time (March 1997) that it estimated the modernisation costs at EUR […]. It is thus clear that NEUWOGES was well aware that the 1997 valuation severely underestimated the necessary modernisation costs. The lump sum agreed between BAVARIA and NEUWOGES’ subsidiary, BRG, for the modernisation of the property was significantly higher still (EUR […]), demonstrating that, when NEUWOGES concluded the contracts with BAVARIA, it knew that the 1997 valuation had underestimated the modernisation costs by almost EUR 10 million.

3. (c)

   Remaining useful life

   With the envisaged modernisation in view, the 1997 valuation estimated the remaining useful life to be between 55 and 70 years. It must be noted in this context that the low estimated modernisation costs in the 1997 valuation do not fit easily with the assumption that the modernisation would significantly extend the economic lifespan of the buildings.

4. (d)

   Land value

   It must be noted that, in evaluating the land in question, the 1997 valuation did not take into account value-reducing factors (in contrast, they were taken into account in the 2007 valuation). Such factors include existing infrastructure that cannot be moved or removed (sewage systems, pipes) and the fact that the plot of land was of an inconvenient shape. These factors typically lead to a reduction in the value of the land. As the owner of the land, NEUWOGES must have been aware of these factors and must therefore have known that the 1997 valuation overestimated the land value.

In conclusion, NEUWOGES was demonstrably aware that some of the key assumptions underlying the 1997 valuation, especially regarding the modernisation costs, were unreliable. The Commission therefore concludes that the 1997 valuation is not a reliable indication of the value of the property in 1997, as known to NEUWOGES at the time.

At the same time, the Commission is of the opinion that, on the basis of the information available to NEUWOGES at the relevant time, the ex-ante estimate of the property value that a MEO in the position of NEUWOGES might reasonably have obtained would probably have been very similar to that contained in the retrospective 2007 valuation. As happened with the retrospective 2007 valuation, a MEO in the position of NEUWOGES would have based its ex ante expectations regarding achievable rent on the relevant rent table, would have estimated the modernisation costs as being closer to those agreed between BAVARIA and BRG, and would have adjusted the land value by taking into account value-reducing factors of which it was aware. In addition, a MEO in the position of NEUWOGES would have carefully evaluated the remaining useful life in the light of the envisaged modernisation and of comparison data (as was done in the 2007 evaluation), so that it is reasonable to conclude that a MEO in the position of NEUWOGES would have based its valuation on estimates of the remaining useful life similar to those contained in the retrospective 2007 valuation.

The Commission thus considers that a MEO in the position of NEUWOGES would reasonably have estimated the value of the property, before concluding the sale-and-lease-back transaction, to have been approximately EUR […] (as was the case in the 2007 valuation).

1. (a)

   First, it must not be overlooked that the outright sale alternative at issue related to an outright sale of the buildings and attached land, whereas BAVARIA bought only the buildings, while merely acquiring the rights to lease the land for 75 years. The land as such remained in the ownership of NEUWOGES. The land alone was estimated by NEUWOGES to have a value of EUR […] (as in the 2007 valuation). While it is difficult to put a precise figure on the value that NEUWOGES maintained by merely leasing the land rather than selling it, it must be concluded that NEUWOGES’ retaining ownership of the land justified a somewhat lower transaction price.

2. (b)
   Second, it must be observed that there is some doubt as to whether the price that a MEO in the position of NEUWOGES would have estimated could actually have been achieved. The only concrete purchase offer that NEUWOGES has submitted information on came from Felske Immobilien, which apparently offered a price of EUR […] per m², resulting in a total purchase price of EUR […]108. This offer was well over EUR 1 million lower than the price that a MEO in the position of NEUWOGES would have estimated.
3. (c)

   Third, NEUWOGES, in estimating the profits that it expected to make from the general management contract, erroneously calculated profits only up to and including 2027. However, as the duration of the general management contract was 30 years from the end of the modernisation works (i.e. 30 years from the beginning of 1999), the calculation should have included profits up to and including 2028. Correcting the estimate in this way would add to the value of the sale-and-lease-back transaction.

4. (d)

   In calculating the cash value of the future ground rent payments by BAVARIA to NEUWOGES, it was assumed, for the sake of simplicity, that the cost of living would not change and that the payments would therefore not need to be adjusted. It is more realistic, however, to assume that the cost of living will generally rise, so that the payments due in the future will probably turn out to be higher than assumed. This would again lead to an increase in the value of the contract.

In light of these considerations, it must be concluded that preferring the sale-and-lease-back transaction to attempting an outright sale was economically reasonable.

As already indicated, NEUWOGES did not undertake a fully-fledged, open, transparent, unconditional and non-discriminatory tender with a view to privatising the buildings eventually sold to BAVARIA. However, NEUWOGES did initially solicit offers from 72 potential buyers. NEUWOGES claims that it chose the recipients more or less at random and that the selection could not be considered as representative of the entire market. Further contacts resulted after these initial calls for expression of interest were sent out, inter alia, with BAVARIA, which had not been among the recipients of the initial letter.

While this bidding process cannot be classified as an open, transparent, non-discriminatory and unconditional tender, it nevertheless provides some indication of what offers were available on the market. In this regard it is also significant that apparently a number of unsolicited bids were received, showing that potential buyers not among the 72 originally contacted companies also had an opportunity to learn of the process and participate.

The assessment of the bids by NEUWOGES indicates that NEUWOGES perceived BAVARIA’s bid to be the best available on the market at the relevant time (1997/98). NEUWOGES’ argument that at least the Felske bid was actually better is unsustainable. While it is true that the price apparently offered by Felske (EUR […]) was higher than the upfront payment eventually made by BAVARIA (EUR […]), it must be pointed out that the sale-and-lease-back transaction has to be assessed as a whole and that its total value (EUR […]) was higher than the price offered by Felske.

In this light, it can be stated that, even though the bidding process carried out was not such as to constitute proof in itself that BAVARIA’s bid was the best available on the market, it points in this direction. In any event, the limited bidding process provides no substantiated indication that a better offer was available to NEUWOGES at the relevant time (1997/98).

It is helpful to assess the transaction in question against different, but generally similar, types of transactions offered on the market at the relevant time (1997/98).

The transaction in question is a typical sale-and-lease-back transaction. Sale-and-lease-back agreements are, by nature, financing transactions. By buying a property from the lessee, the lessor provides the lessee with liquidity and/or finances major investments, such as the modernisation of old buildings. In order to continue using the property, for commercial or other purposes, the lessee then leases the property back, thereby (fully or partly) paying back the lessor’s investment over the duration of the lease contract.

Being a financing transaction, a sale-and-lease-back agreement has a certain similarity with bank loans and mortgages. There are, however, some important differences that need to be kept in mind. A sale-and-lease-back transaction enables the seller/lessee to finance major investments and gain instant liquidity without having to rely on own capital. This means that own capital and the additional liquidity obtained are available for other investments, or that the lessee can finance investments even where a traditional loan would not be available because of the lack of own capital or a high degree of indebtedness. As the buyer/lessor has to re-finance its own initial investment and make a profit, the leasing rate is typically somewhat higher than the interest rate on a comparable bank loan (as explained in further detail in the following section). At the end of the lease contract, the lessee either has to repurchase the property or it remains in the ownership of the lessor and is available for further use. This means that the leasing rate depends on the residual value of the property at the end of the lease contract concluded between the two parties. As the residual value is often difficult to predict, especially in the case of long-term leases, it represents a risk factor for the lessor that is reflected in the leasing rate. No such risk is involved in traditional bank loans, and only to a certain degree in mortgages.

The consequence is that the leasing rates and the interest rates for loans/mortgages are not entirely comparable. By comparing the leasing rate for the transaction in question with the average interest rates on loans/mortgages available at the relevant time (1997/98), it is not possible to determine precisely whether the leasing rate charged was in line with the market conditions at the relevant time (1997/98). It is, however, possible to say whether the leasing rate was so high that it appears that no MEO would reasonably have engaged in the transaction.

In the transaction in question, the leasing rate was initially set at […]% p.a. of the total investment volume. Due to the indexation of the amount owed by […]% p.a., the leasing rate will rise to […]% at the end of the contract, resulting in an average leasing rate of […]% p.a. For the sake of comparison, if NEUWOGES had chosen not to index the leasing rate, it would have been set at […]% p.a. over the entire duration of 30 years. The ‘premium’ is then the cost of choosing lower leasing rates at the beginning, and higher leasing rates towards the end, of the contract, rather than stable rates throughout.

It must first be pointed out that Rostock Regional Court assessed the leasing rate against interest rates for other transactions. It observed that the development of the interest rates on mortgages over a time span of 30 years was difficult to predict, but that interest rates of over 10 % could be expected in periods of high interest rates. It observed that the average leasing rate charged to NEUWOGES could not, then, be seen as being out of line with market terms.

Only fairly general data is available for comparison. Of all the data gathered by the German Bundesbank for January 1998 (when the transaction in question was concluded), two types of interest rates can be considered relevant. First, the interest rates for ‘mortgage loans secured by residential real estate with interest rates fixed for 10 years’ are of interest, since NEUWOGES too would use residential real estate as collateral for a loan (regardless of whether or not such a loan would meet all the formal conditions of a mortgage). Second, the interest rates for ‘long-term fixed-rate loans to enterprises and self-employed persons, EUR 500 000 and over but less than EUR 5 million’ could also be suitable for a comparison, since NEUWOGES can be considered as an enterprise (while mortgages are usually taken out by private individuals who actually live in the property themselves rather than renting it out).

• The average yearly leasing rate over the 30-year contract period is […]%. However, as discussed above, this rate is the result of NEUWOGES’ choosing to pay a lower leasing rate at the beginning of the contract period, offset by a higher leasing rate later on. This choice comes at a cost, because if NEUWOGES had opted for a flat leasing rate from the start it would have had to pay a rate of only […]% per year115. The figures from the Bundesbank are for fixed-rate loans, meaning that the interest rate is equal in each of the years. If it is assumed that NEUWOGES would have been in a position to negotiate a loan with similar payment conditions (i.e. lower interest payments at the start and higher payments towards the end), this would also have come at a cost (for the same reasons as for BAVARIA)116. The Bundesbank interest rates should therefore be compared with the flat leasing rate of […]%.

• The leasing rate has been fixed for a period of 30 years. Although it is indexed each year, it was perfectly possible, as early as at the start of the contract, to calculate the average leasing rate for the duration of the contract. The Bundesbank interest rates for mortgages are fixed for only 10 years (as explained above, it is not known for which period the interest rates for enterprises are fixed, but it can be assumed that the period is of no more than 10 years). The most suitable benchmark would be interest rates fixed for 30 years, but these figures are not published by the Bundesbank. In general, fixed-interest rate loans become more expensive the longer their duration. For example, the Bundesbank figures for January 1998 show that a mortgage with a 5-year fixed rate had an average interest rate of 5,85 %, compared to 6,40 % for a loan with a 10-year fixed rate. Therefore, it can be safely assumed that the interest on a fixed-interest loan of 30 years’ duration would have been considerably higher than the Bundesbank averages of 6,35 % and 6,40 %.

• The Bundesbank figures provide both an average rate and a range of interest rates based on a large number of German loan contracts concluded in January 1998. The leasing rate that applied to NEUWOGES implicitly reflects the inherent risk of the transaction for BAVARIA. BAVARIA’s greatest exposure was to credit risk, i.e. the risk that NEUWOGES would go bankrupt or otherwise not fulfil the obligation to make the required leasing payments. Similarly, a bank would have made an assessment of NEUWOGES’ creditworthiness before granting a loan. Clients with a lower creditworthiness (or a higher credit risk for the bank) are usually charged a higher interest rate to compensate for the additional risk117. As discussed above (see section 7.3.1), NEUWOGES had a limited ability to obtain new loans because of its relatively high degree of indebtedness and the fact that its own capital was tied up in other investment projects. If, however, a bank had been prepared to grant a loan to NEUWOGES, it would have taken these elements into account when setting the interest rate. Loans to companies with a relatively high level of debt and a low own-capital contribution to the investment have higher interest rates. Because of this, any comparison of the leasing rate paid by NEUWOGES and the interest rates on loans available on the market should focus on the higher end of the Bundesbank interest-rate range118.
• As mentioned above, a leasing company has to refinance its initial investment (in this case mainly the purchase price for the apartment blocks and the costs of modernisation). The interest rate it has to pay for its own refinancing will depend on several factors, such as its size, its level of debt, the property in its portfolio, etc. In any event, this interest rate is just the starting point, as the leasing company (BAVARIA) also needs to be compensated for the risks it bears. These can include interest-rate risk (the risk that it will have to refinance its investment on the basis of a variable interest rate, while the lease payments have a fixed rate), credit risk (the possibility, as discussed above, that NEUWOGES will go bankrupt and that BAVARIA will not be able to recover the lease payments still due), and residual value risk (the uncertainty about the value of the property after the lease contract has expired). The leasing company is also likely to have certain overhead costs which would also be reflected in the leasing rate119. Finally, the leasing company also intends to make a profit and will take account of this factor in setting the leasing rate120. Even if BAVARIA had been in a position to refinance its investment at an interest rate lower than that which NEUWOGES would have been charged for a bank loan, the refinancing interest rate would have had to be increased in the light of these different elements (risk premium, costs and profit) in order to obtain the applicable leasing rate, which could have ended up being higher than the interest rate on a traditional loan.

Taking into account all of the above elements, a leasing rate of […]% p.a. for a fixed leasing payment (or even of […]% for a leasing payment indexed at […]%, although this figure appears less suitable for comparison purposes) appears rather reasonable when compared to the Bundesbank figures for loans. The Bundesbank figures should be adjusted to reflect, for example, a fixed-rate duration of 30 years. While the correction required to arrive at a suitable benchmark cannot be precisely quantified, the difference between the average interest rates for loans and mortgages and the leasing rate seems sufficient to conclude that there are no indications that the BAVARIA leasing rate was too high. Accordingly, the Commission concludes that the leasing rate applied by BAVARIA was in line with market conditions at the relevant time (late 1997/early 1998).

BAVARIA is involved in a series of economic activities, such as commercial investment in real estate and the leasing of such real estate to commercial and private customers. BAVARIA is thus an undertaking within the meaning of Article 107(1) TFEU.

As regards imputability to the State, the Commission notes that the available information indicates that the City of Neubrandenburg was significantly involved in the conclusion of the sale-and-lease-back transaction. Entering into this transaction required the approval of NEUWOGES’ Supervisory Board, whose members acted on behalf of the City. The records also show that the Supervisory Board was actively involved in negotiating the contracts. The Commission therefore finds that the conclusion of the sale-and-lease-back contract is imputable to the State.

Under Article 107(1) TFEU, a measure counts as state aid only if it favours ‘certain undertakings or the production of certain goods’. Hence, only measures granting undertakings a selective advantage come under the heading of state aid.

Since the measure in question was a bilateral transaction between NEUWOGES and BAVARIA, any advantage granted by NEUWOGES to BAVARIA would have been selective, in that no other undertakings would have had access to it.

BAVARIA competes for investors and investment opportunities with other real-estate funds and corporate investors from Germany and other Member States of the Union. A financial advantage granted to BAVARIA would strengthen that undertaking’s competitive position and would therefore be liable to distort competition. Since the market for real-estate investments is Union-wide, any financial advantage for BAVARIA would strengthen the latter’s market position in comparison with its competitors from other Member States, thereby having an impact on trade between Member States.

Assuming that, contrary to the Commission’s primary conclusion outlined above, the sale-and-lease-back transaction did not comply with the rational MEO principle and therefore granted an advantage to BAVARIA, it would have to be concluded that the sale-and-lease-back transaction involved state aid. Consequently, it must be assessed whether, on this hypothesis, the state aid could be considered as being compatible with the internal market.

• in the 1990s, after German reunification, it was an important political project to bring housing conditions in East Germany into line with those in West Germany, with the consequence that buildings in East Germany were hurriedly privatised and modernised, regardless of whether or not this made economic sense;

• the efforts to privatise and modernise the buildings that were the subject of the sale-and-lease-back transaction were also directed at enhancing the future prospects of the City of Neubrandenburg: by offering people high-quality, affordable housing and by privatising it (as BAVARIA was obliged to do), NEUWOGES hoped to make Neubrandenburg more attractive to its citizens.

If the sale-and-lease-back transaction between NEUWOGES and BAVARIA were, in actual fact, classified as state aid, which it is not, this aid would have been granted in pursuit of the policy objectives listed above. Supplying a region with sufficient housing, helping to achieve a national public policy objective (bringing the housing conditions in East Germany into line with those in West Germany following reunification), enhancing the future prospects of the City of Neubrandenburg by offering its population attractive and affordable housing (including by favouring the current tenants of the buildings in question) all qualify as well-defined objectives of common interest. The Commission therefore considers that the measure is to be regarded as pursuing an objective of common interest.

It is not disputed that the sale-and-lease-back contract concluded by NEUWOGES and BAVARIA achieved the desired objectives, in that the transaction ensured that the buildings bought by BAVARIA were comprehensively modernised, privatised and offered to the current tenants at a capped price, and that this led to the increased supply of quality housing in the region, thereby enhancing the City of Neubrandenburg’s future prospects.

In seeking a buyer for the buildings and evaluating its options, NEUWOGES took a series of steps that, in effect, ensured that, if the sale-and-lease-back transaction involved any aid, this would be limited to the amount necessary to achieve the desired objectives. In particular, NEUWOGES carried out a limited bidding process, negotiated the terms of the transaction with BAVARIA over several months, and was finally convinced that the transaction represented the best offer on the market. There is, then, no indication that, even if aid was involved in the sale-and-lease-back transaction, this aid exceeded the minimum required. The analysis above (see section 7.3) comparing the sale-and-lease-back transaction to various alternatives (such as a loan-based modernisation of the buildings or an outright sale) demonstrated that no alternative was available that would have achieved the same objectives without aid being granted or with a lower amount of aid being granted. The sale-and-lease-back transaction and any aid it may have contained were thus appropriate instruments for achieving the objectives of common interest.

Assuming that the sale-and-lease-back transaction involved state aid, it must further be examined whether this aid had an incentive effect. NEUWOGES and BAVARIA negotiated the terms of the transaction over several months. It appears that BAVARIA would not have entered into a transaction that did not fit in with its ‘real-estate leasing model’. If the transaction that was eventually concluded, which was based on BAVARIA’s ‘real-estate leasing model’, involved state aid, then there is no doubt that, without this aid, BAVARIA would not have engaged in the transaction.

The Commission has already indicated that the policy objectives pursued by NEUWOGES in entering into this transaction must be viewed as being important. The modernisation and privatisation of the buildings, including their sale at a capped price to the tenants, made an important contribution to improving economic and social cohesion within the Union. At the same time, the amount of aid in favour of BAVARIA contained in the sale-and-lease-back transaction — if any — was, at most, limited — a state of affairs that also limited any distortion of competition by the measure. In this light, any aid that may have been contained in the sale-and-lease-back transaction between NEUWOGES and BAVARIA was proportionate to the objective pursued.

It should again be pointed out that the amount of aid in favour of BAVARIA involved in the sale-and-lease-back transaction — if any — was, at most, limited. The effect of the measure on trading conditions was thus also limited. While any aid contained in the sale-and-lease-back transaction would have improved the competitive position of BAVARIA, which was at least potentially in competition with other undertakings (including undertakings from other Member States), the extent of this effect depends on the amount of aid received. Since BAVARIA’s competitive position would thus have been only marginally improved, it can be concluded that the sale-and-lease-back transaction, even if it contained aid, did not affect trading conditions to a degree contrary to the common interest.