Lone Star set to win €1.1bn TLG Immobilien over joint Cerberus and Blackstone bid

Lone Star is on the verge of winning the private equity auction for Germany’s State-owned TLG Immobilien paying between €1.1bn to €1.2bn, beating joint bidders Cerberus Capital Management and Blackstone, CoStar News has learned.

Cerberus and Blackstone were understood to be in second place ahead of Morgan Stanley Real Estate Funds, in the bidding process to privatise the east German commercial real estate property company, which had an end of 2011 market value of €1.36bn.

Lone Star will finance the direct property portfolio – which comprises 1,054 properties across Baltic coast, Berlin, Dresden, Halle and Leipzig – with incumbent debt which will likely be increased by fresh senior debt from banking markets.

CoStar News first reported the private equity finalists for TLG Immobelien last month.

State-owned parent company TLG Group has also separately sold its residential portfolio, TLG Wohnen, which was ring-fenced as a standalone legal entity at the turn of the year to enable separate sales.

CoStar News understands that TAG Immobilien has won the residential TLG Wohnen portfolio, paying around €450m for a portfolio which was valued at the end of 2011 at €482m. TAG beat competition from rival German REIT, KWG Kommunale Wohnen.

Barclays Bank has managed the sales process.

The combined commercial and residential portfolios were last valued at €1.846bn at the end of 2011, secured by a German landesbank syndicate €696.5m comprised of Kreditanstalt für Wiederaufbau, the government-owned development bank, Landesbank Berlin, Deutsche Kreditbank, Bremer Landesbank and Sächsische Aufbaubank.

The outstanding €696.5m bank debt syndicate will be proportionally transferred to Lone Star and TAG, CoStar News understands, with Lone Star likely to seek additional finance to increase the current blended 37.7% LTV across the combined portfolio.

Lone Star’s TLG Immobelien commercial property portfolio comprises 1,054 assets across Baltic coast, Berlin, Dresden, Halle and Leipzig, valued at €1.346bn at the end of 2011, comprised of: €525m in retail; €420m in offices; €281m in serviced properties and hotels; and €138m in additional commercial properties including business parks.

The total annual income for the TLG Immobilien commercial portfolio was €105.3 per annum.

Lone Star’s likely business plan is through the “wholesale-to-retail” investment strategy, where investors buy in bulk at discount and sell piecemeal at a premium to that price, often after asset management initiatives have been implemented to further increase value.

TAG’s TLG Wohnen residential portfolio, last valued at €482m at the end of last year, comprises multi-family properties in Berlin and surrounding area, the Baltic coast and central German core markets. The TLG Wohnen portfolio delivered €43.1m in annual rental income last year.

Germany’s Finance Ministry brought TLG to the market back in mid-March, with final submissions for TLG Immobilien and TLG Wohnen submitted exactly one month ago, on 18 September.

The Finance Ministry is aiming to close the two transactions before the year end.

This is the second attempt by the German government to privatise TLG, after an attempt four years ago was aborted because of the global financial crisis. The Federal Republic of Germany was obliged to divest the ownership as decreed by the government’s Federal Budget Code.

TLG houses the government’s commercial and residential assets from the former East Germany after the country’s reunification 23 years ago, with large geographic concentrations in Berlin, in Dresden and in Rostock.

TLG has reported annual profits since 2002.

All parties declined to comment.

jwallace@costar.co.uk

About CoStar News

Finance Editor, CoStar News
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