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Commerzbank has appointed Lazard to explore the options for a sale of the €5bn Spanish division of Hypothekenbank Frankfurt, formerly Eurohypo.
The move comes eighteen months after Germany’s second largest bank decided to wind down Eurohypo, its specialist property lender, and a few months after successfully completing the sale of the £4bn UK Eurohypo book and team. Wells Fargo bought £2.7bn of UK performing loans and took on the staff and the £1.3bn balance of mainly non-performing loans went to Lone Star.
The Spanish division is led by Stephane Adolf, head of southern Europe, and Madrid-based head of branch Nicole Jurgensen and head of workout, Pablo Iglesias. At 30 September the loan book’s total size was €5bn, comprising €3.3bn performing and €1.7bn of non-performing loans.
Commerzbank has repeatedly said that it won’t take a large loss on the written-down value of its legacy loans and that Hypothekenbank’s focus is ”on reducing the portfolio while preserving value and scaling back risks”. The UK book was sold at a blended single-digit discount, reflecting a c80% performing and 20% non-performing profile.
The Spanish market is still very distressed and an earlier attempt to sell a €400m Eurohypo loan portfolio there called Project Sol was pulled when bids were disappointing. But this year has seen a huge increase in interest in opportunities in Spain from private equity and other buyers which perceive the market as at or near the bottom.
One trend has been a rise in the number of debt servicing platforms acquired by US private equity firms ahead of an anticipated rise in loan sale activity. Cushman & Wakefield Corporate Finance says seven have been sold already this year. Cushman has recorded almost €4bn of Spanish CRE loan sales out of a total of over €23bn in the year to date.
Apollo and Cerberus, both buyers of Spanish loan platforms, have approached Barclays about buying the bank’s Spanish loan book.
Hypothekenbank is also part-way through the sales process of a €900m portfolio of Polish loans. That sale follows other withdrawals from the market there as loans mature, including a refinancing last year led by Aareal Bank of a €615m syndicated loan which Eurohypo made to Area Property Partners (then Apollo) for a 7m sq ft retail portfolio in six Polish cities.
In the US, Hypothekenbank has just appointed Situs to manage out its remaining performing book which had reduced to less than €2bn by June 2013. The New York branch of Hypothekenbank is closing and Situs will carry out all loan servicing and property asset management.
Hypothekenbank’s total CRE loan book was €47bn on 30 June this year, down from €54bn at December 2012. That did not include the UK sale which became effective in Q3 2013. Some €21.5bn was the German book and the bank also still has significant legacy businesses in France, Italy, Portugal and Russia. In its first half results Hypothekenbank expected “to take significant loan loss provisions once again at the end of 2013”.
A raft of senior managers have left the bank since the summer including chairman of the management board Thomas Koentgen, CFO Katrin Stark and head of credit Thomas Bley. The bank aims to cut about 500 jobs by 2015.
Jane Roberts, editor
See last month’s Real Estate Capital to read a profile of Aareal Bank and next month’s, published next week, for a comprehensive update on European loan sales in 2013.
IGC-Longbow has closed five senior loans totalling just under £37m in less than two weeks, taking its inaugural £102m listed senior debt fund from 50% to 85% invested.
With a couple of further deals in the pipeline, the fund will be substantially invested by Christmas, meeting the 6% per annum returns it promised its retail investors.
Its latest deal was for a company called Raees International; it provided a £13.25m, five-year loan secured against a 25-strong portfolio of retail and residential assets in London. Another mixed retail/resi portfolio that it has lent £7.2m on is spread across South East London, owned by Richmond Trust.
The fund has also issued £6.56m for Hulbert Properties’ midlands industrial portfolio. In addition, it has lent £8.6m and £1.3m to Halcyon Nominee and Cararra Nominee respectively on two separate ground rent portfolios linked to industrial property nationwide and a single office property in the North.
Each of the first-charge loans is for a five-year term.
The fund has made eight loans so far totalling £87.25m and the average exposure across them all is 61% loan to value. The average interest coverage ratio is 165%; the average coupon is 7.28% excluding Longbow’s costs and fees.
Industrial property makes up 34% of the fund’s book; retail 21%; student accommodation 20%; and mixed office, retail and residential portfolios 23%. Offices comprise just 2%.
The fund has met the 6% target by offering finance across the UK for owners of good quality assets with, for example, slightly shorter lease lengths – an area of the market where banks are not willing to lend – and charging more than banks typically would.
Lauren Parr, news editor
Aviva Investors’ global head of property Ian Womack has taken over management of Aviva’s real estate debt business.
From the end of the year, Aviva Commercial Finance, which makes long-term, fixed rate loans to match Aviva’s annuity book, will become part of Aviva Investors.
Kevin Sale, who was head of Aviva Commercial Finance, has retired from the company after more than 43 years service.
Womack now has responsibility for both the long-established annuity lending book, currently over £10bn, and the shorter-term lending programme started this year with the launch of Aviva Investors’ UK Commercial Real Estate Debt Fund.
The debt fund makes senior loans at up to 65% loan to value with five to 10 year maturities targeting a yield between 2.5% and 3.5% above equivalent UK government bonds. Managed by James Tarry, it has raised £287.5m of equity from seven investors and had made two loans totalling £53m by last month.
The first close was mainly money from an in-house client; the second close included investments from four UK defined benefit pension schemes.
The fund is one of many new vehicles and mandates for investing in senior property debt launched or proposed in the last two years to take advantage of a gap in the market left by banks.
The c30-strong Aviva Commercial Finance team specialises in loans secured on commercial property, public private finance and GP practices. They will remain based in Norwich. A replacement for Sale is expected to be announced soon.
The restructuring is independent of other changes within Aviva Investors, which is implementing a round of job cuts and will see Richard Jones leave his role as head of internal property clients this month.
Jane Roberts, editor
Debt-backed investment outside London and other large-ticket core UK markets is rising, according to a new survey by Laxfield Capital.
Laxfield Capital’s UK CRE Debt Barometer, a new report which analyses over £25bn of financing requests from UK commercial real estate investors this year, found that requests for loans below £50m increased substantially in 2013, from 20.4% at the beginning of the year to 50.0% in Q3.
“What makes this survey unique is that we’re looking at the demand for debt from the earliest point, when investors approach the finance market . We think that makes it an very interesting predictor of future lending activity,” says Emma Huepfl, Laxfield’s head of capital management.
Around three-quarters of the borrowers wanted to use the debt for acquisitions, indicating that investors are moving beyond the big-ticket “safe-haven” assets. “We also see new lending opportunities in the regions and an overall improved confidence in the availability of real estate finance,” says Huepfl.
Requests for loans to fund new acquisitions jumped over the year, to 42.2% of the amount sought in Q3, reflecting a busier UK investment market. But demand for refinancing still dominates; it made up two-thirds of the volume of debt requested in 2013. Most of this was to refinance existing loans.
Borrowers are still sticking to conservative loan-to-values, at a weighted average of 51.8%. This rose over the three quarters, but Laxfield says the incentive to borrow was limited in early 2013 by the lack of opportunities, when the market was dominated by cash buyers. The average LTV request was just 43.6% in Q1.
Financing for alternative assets such as hotels and student housing has also been climbing, increasing from 20% at the beginning of 2013 to 30.5% of new requirements by Q3.
Huepfl said the analysis gave a picture “of a market becoming increasingly active and liquid with financing demand spreading more widely and away from safe haven assets.”
Laxfield Capital originates and manages loans for a number of lenders including Munchener Hypo, GIC and Met Life. Since starting up in 1995 the company has advised eight international investors on building or expanding UK commercial mortgage businesses.
Alex Catalano, consultant editor
Hatfield Philips, the European property loan servicer that was taken over by US-based Starwood Property Trust earlier this year, has appointed a chief executive to lead and develop a strategy for the business.
Blair Lewis, the former European head of restructuring at Royal Bank of Scotland, will take the new role from 6 January 2014. He left the restructuring team at the UK bank last Friday.
There has been widespread speculation in the property structured finance market about the future of Hatfield Philips since its US parent, LNR Property, was acquired by Barry Sternlicht’s Starwood Property Trust in April. At the time of the negotiations there were rumours that Sternlicht would keep LNR and sell Hatfield Philips to US-firm C-III Capital Partners.
Hatfield Philips is one of the largest primary and special servicers of European legacy commercial mortgage backed securities with £18.5bn under management. But sources said that it needs to build up a pipeline of new business to replace this book as the legacy loans are restructured or repaid and the new issuance of CMBS remains low.
The firm has been appointed on a handful of new deals in the last 18 months, including as special servicer on Deutsche Bank’s Chiswick Park – which China Investment Corporation is in talks to buy from Blackstone – and for Morgan Stanley on the loan it made and syndicated for London’s Adelphi office building. It is the servicer for Cerberus for the ‘Project Thames’ NPL portfolio and has servicing and/or facility agency loan roles for lenders Venn Finance and Renshaw Bay as well as Starwood.
Matthias Schluter is managing director and Matt Grefsheim is head of special servicing.
It is thought likely that Starwood and Lewis will want to build up other lines of business including asset management and advising banks on ‘REO’, or distressed property sales, as well as loan workouts. They will also want to ensure that Hatfield Philips is perceived as an independent third-party servicer under its new ownership to win new servicing and agency business.
Sternlicht, Starwood’s chairman and chief executive, said: “Blair is an accomplished finance professional whose skills and impressive track record of success add tremendous value to the organisation. Having worked closely with Hatfield Philips as a client, he understands the business and we are confident in his ability to help the firm achieve its strategic objectives”.
Lewis said there was an opportunity to “establish the firm as the industry’s premier loan servicer and champion of transparency in the marketplace”.
Lewis is not expected to be replaced at RBS where he headed property loan restructuring in the non-core division in Europe, except Ireland. He reported to Paul Sullivan, global head of property non core, who took over that role from Stephen Eighteen. Mark Wood runs the UK team.
Starwood Property Trust is a mortgage REIT and its main focus is on originating and managing commercial mortgages and investing in other commercial real estate debt investments including non-performing loans.
In Europe it co-invests on some deals alongside Starwood European Real Estate Finance (SWEF), the UK-listed debt fund launched a year ago with £228m of capital and run by Peter Denton.
SWEF’s recent large financings alongside SPT include Heron Tower in the City and Centre Point at Tottenham Court Road, for Almacantar.
Jane Roberts, editor
London & Regional has won support for the restructuring proposals it put forward for its £256m LoRDS 2 CMBS.
An ad-hoc group made up of the majority of each class of notes, advised by Brookland Partners, has okayed the plan, whilst 88% of the Class A Notes (by value); the same percentage of Class Bs; and 67% of Class Cs, have entered into or intend to enter into lock-up agreements with L&R even though part of the plan to remove the liquidity facility could lead to the notes’ rating being withdrawn.
Lock-up gives noteholders a fee for early approval. All noteholders will be asked to vote on the proposals on 20 December.
Essentially, the borrower wants to extend the senior loan by three years to October 2016, and will in return pay noteholders an increased margin ranging from a 3% increase per annum for the Class As; to a 4.25% uplift for the Bs; to a 5.3% rise for the Cs. Noteholders will receive pay back on a sequential basis.
L&R will also provide extra risk cover by paying for an interest rate cap agreement whereby the cap provider is required to make payments to the borrower should LIBOR payable on the senior loan exceed 4% per annum.
An extension will allow L&R time to enhance the value of the portfolio, partly by continuing its refurbishment of Epworth House, Bewlay House and Cotton House, and to deleverage its debt by selling properties. The portfolio had fallen in value from £443.8m at the time the securitisation was issued in July 2006 to £305.2m in August 2013, net of three properties sold at original valuation.
The proposals make provision for a £29m capex loan which will be made by the property company and used to fund the refurbishment works, with 8% interest payable following repayment of the senior loan.
It has designed the proposals in order to hang on to two of the biggest properties with most value within the securitisation – the Hilton-operated Green Park Hotel and the Trafalgar Square Hotel. These cannot be sold or refinanced unless the net proceeds of a sale, or repayment in the case of a refinancing, is higher than 120% of the value of the respective property.
A further feature of the proposals is that the £128m B loan lender will lose many of its rights under the intercreditor agreement in order to enhance its subordination to the senior loan. It will no longer have the ability to enforce, or the right to approve any property sale.
Asset management company APAM will be appointed as property adviser to the noteholders.
Nationwide has appointed Deloitte to help it sell its German real estate loan book.
The accountancy firm is mandated to “take a view on what prices are likely to be, and then sell it” speculated a source.
Nationwide invited proposals from the big accountancy firms and one investment bank to advise on a disposal plan. Its German book is thought to have a face value of around €1.1bn although it could be lower, at €800m, “after provisions” the source noted.
Up to half of the book is non-performing. Nonetheless, Nationwide does not see itself as a forced seller, the source added. Part of Deloitte’s role will be to consider any regulatory requirement that Nationwide must adhere to as a UK building society.
Nationwide considered divesting the non-core German property book last year, but pulled back because the indicative pricing would have meant taking losses above the provisions made.
It has since been focusing on the portfolio and in May, recruited Steve Clegg from RBS’s global restructuring team to lead work on the non-core portfolio, including the German loans.
After stepping back in May 2012, the building society returned to lending on property again in the UK in September, with new teams established in London and Manchester reporting to Mark Bampton.
They are focusing on smaller real estate deals, typically up to £20m and on a bilateral basis. This is a part of the market where the building society believes there is demand from borrowers but less competition from other lenders and which fits in with Nationwide’s strategy to support SMEs.