Dragoner site becomes redevelopment area: what it means for Berlin's property market

On 5 July 2016, the Berlin Senate designated the Rathausblock in Kreuzberg, including the prominent Dragoner site, as a redevelopment area. This provisionally ends a years-long conflict over the strategically located land between Yorckstrasse and Mehringdamm. The decision signals how the Senate intends to steer urban development in central locations going forward.

What the redevelopment designation means

The decision activates redevelopment law under Germany's Federal Building Code. The State of Berlin can exercise a pre-emption right for the entire site and reverse the sale by the Federal Institute for Real Estate Tasks (BImA) to a private investor. Property sales within the designated area now require approval at market value only. Value increases resulting from redevelopment are to benefit the public, and speculative price movements are blocked. Around the Rathausblock, this caps speculative price moves and shifts the market trajectory toward municipally steered development.

Plans for housing, commerce and culture

The site is to become a mixed-use neighbourhood combining residential, commercial, cultural and social infrastructure. At least 50% of the new apartments are to be built with social housing subsidies, targeting low and middle income households. The size of the site also offers potential for inner-city green spaces in one of the most densely populated areas of the capital, close to Mitte.

The long road to a municipal solution

The dispute over the Dragoner site goes back to 2010. After the leaseholder went insolvent, BImA planned to sell the land to the highest bidder. In 2012, a Hamburg-based investor won the bid at around 20 million euros. The borough refused to change the zoning plan and demanded an integrated urban development concept. The investor withdrew in 2014. In a new procedure, the contract went to a buyer at 36 million euros, a sum that state housing companies could not match. In 2015, the Bundesrat blocked the sale, paving the way for the current solution.

Expect more municipal intervention on comparable sites

The decision shows the Senate is prepared to use urban planning instruments such as pre-emption rights and redevelopment law to keep key sites in public hands. For private developers and investors, this means that comparable sites are increasingly likely to face municipal intervention and cooperative development models. The path toward construction by state-owned housing companies has been set.