BERLIN: Vonovia (VNAn.DE) has agreed to sell a minority stake in its Suedewo residential portfolio to U.S. investor Apollo for 1 billion euros ($1.10 billion), Germany’s largest real estate group said on Thursday.

The transaction could have a signal effect on the struggling German real estate market, where hardly any major sales have occurred in recent months in the face of high interest rates and falling real estate prices.

The transaction values the Suedewo portfolio in the southwestern state of Baden-Wuerttemberg at 3.3 billion euros, which is a discount of less than 5% to Suedewo’s fair value as of December 31, Vonovia said.

The German group, which will continue to manage the portfolio of more than 21,000 residential units, has agreed to a long-term buy-back option without an obligation to do so, at an internal rate of return (IRR) of 6.95%-8.30% including dividends received, it said.

With the proceeds, Vonovia will generate around half of the targeted 2 billion euros in free cash flow from asset sales.

“Not the big bang, and sold 5% below recent fair value, but should be viewed as a first step in the right direction,” a local trader commented following the announcement.

Vonovia’s stock rose 2.6% at 0733 GMT to the top of Germany’s blue chip index (.GDAXI).

To secure access to capital amidst the property market crisis, the group earmarked properties worth 13 billion euros for sale in the summer.