Royal Bank of Scotland has sold the two centrepiece office towers in the German Pegasus portfolio to AXA Real Estate Investment Management and Norges Bank Investment Management for €784m, in a cash purchase that further cements a joint venture partnership established last summer.
The disposal of Berlin’s 16-storey Kurfürstendamm Boulevard tower and the 81,600 sq m Die Welle, a glass tower in Frankfurt’s financial district, unwinds the bulk of RBS’ unintended ownership in direct German office real estate.
RBS’s ownership of the Pegasus portfolio was the consequence of a spectacular failed timing gamble by Morgan Stanley’s P2 Value German property fund, which acquired the portfolio in two tranches from Union Investment Real Estate in May 2007, just weeks away from the bursting of the global property market bubble.
Die Welle, also known as the Frankfurter Welle, was purchased for €703m by MSREF more than five years ago, and is understood to have sold to AXA Real Estate and Norges for around €410m.
MSREF also seperately paid €1.36bn for a 28-strong portfolio, including the Kurfürstendamm Boulevard, which was thought to be valued at €380m prior to the combined two tower sale to AXA and Norges for €784m.
RBS provided MSREF with a financing package worth €1.86bn, thought to include a combination of senior and mezzanine, against the Pegasus portfolio which was valued at €2.06bn reflecting a 90% LTV.
RBS had originally planned to securitise the whole loan, through its EPIC securitisation programme, and sell down the junior loan, but the global financial crisis made this exit strategy impossible.
After Germany’s real estate market collapsed in tandem with the wider global market correction in values, MSREF declined to inject fresh equity into the portfolio and effectively handed ownership to RBS in April 2010.
The bank has waited for the market to stabilise before exiting its significant unintended German real estate ownership.
RBS’ ownership of the Pegasus portfolio in April 2010 was effectively the biggest German transaction of the year two years ago, and is the biggest transaction again for the country this year.
AXA Real Estate, on behalf of AXA France Insurance Companies, and Norges Bank Investment Management (NBIM), manager of the Norwegian Government Pension Fund Global, each have a 50% stake in the two towers.
The transaction is expected to complete before the year-end.
In July 2011, NBIM and AXA Real Estate established a joint venture to purchase a €1.4bn portfolio of seven prime office properties in and around Paris. A subsequent co-investment into a €290m portfolio of Paris office assets was also made in November 2011.
Karsten Kallevig, chief investment officer for real estate at NBIM, said: “This marks the fund’s first property investment in Germany. It is in line with our strategy to build our real estate portfolio by initially investing in large, well-developed markets alongside partners with aligned interests.”
Pierre Vaquier, CEO of AXA Real Estate, said: “This transaction highlights our ability to both source high quality real estate assets through our local country teams and invest in joint venture with world class investors. In a challenging environment, AXA Real Estate is focused on sourcing large transactions with core characteristics and asset management opportunities.
“We are also extremely pleased to continue our relationship with Norges Bank Investment Management, particularly as we are assisting with its first investment in Germany, while at the same allowing AXA France to achieve its stated strategy of diversifying investments in to other European markets, especially the UK and Germany.”
Norges Bank Investment Management (NBIM) is the asset management unit of the Norwegian central bank set up in January 1998 to manage Norway’s Government Pension Fund Global, known as the Norwegian oil fund, and most of Norges Bank’s foreign exchange reserves.
The fund was given a mandate in March 2010 to invest as much as 5% of its assets in real estate outside Norway, at the expense of its fixed-income allocation.
At the end of the second quarter, the Norwegian oil fund was valued at 3,561bn kronner, which is €481.72bn or £387.66bn.
A 5% stake would reflect €24.08bn or £19.39bn.