Mountgrange and Patron Capital have bought Henderson Global Investors’ 24-strong Mercury UK regional secondary portfolio for £184m financed by £55m Santander five-year senior loan, closing the purchase last night 24 hours before a bondholder vote on an extension to the matured £171.46m CMBS debt.
The 50:50 joint venture partners immediately flipped seven of the assets to CBRE Investors for £64m, while one asset was sold individually to both Royal London and F&C REIT.
Underbidders for the Mercury portfolio included Legal & General, Palmer Capital, Rowan Asset Management, JPMorgan Asset Management and F&C Reit, with the latter acquiring a single asset from Mountgrange and Patron Capital.
Henderson’s sale to Mountgrange and Patron Capital was equivalent to the latest valuation by BNP Paribas, but is 27% below the previous valuation, which was £234.86m dated at 29 April 2010, as recorded by Hatfield Philips, the loan servicer for the Royal Bank of Scotland-issued CMBS, Epic Caspar.
Epic Caspar CMBS bondholders were due to vote tomorrow on Henderson’s request for a six-month standstill extension which if rejected, could have prompted the transfer of the loan into special servicing and a potential enforcement of the portfolio given that the loan has passed its 29 October maturity.
Last night’s deal with Mountgrange and Patron Capital now ensures bondholders be repaid in full at the January interest payment date, while achieving the best achieveable price for the remaining original Caspar portfolio for Henderson.
Martin Payne, the fund manager of the Caspar Fund said: “Strategic disposals earlier in the Fund’s life coupled with the completion of an extensive programme of asset management business plans maximised investment value and returns to the unit holders.
“It has been a tense and challenging process between managing the debt expiry at the same time as trying to conclude a very complex disposal transaction.
“We are delighted to have concluded a satisfactory outcome which means we are able to return equity to investors from a fund whose LTV had gone well above 100%. The key to that is in identifying the right purchasers and working together to find solutions.”
Mercury is the largest balanced UK portfolio to have reached the market in over three years.
Manish Chande, senior partner at Mountgrange, said: “This is a diverse portfolio comprised of quality assets in attractive locations and the yield is already healthy. We feel many of the sites have been investment-constrained, so, with our combined expertise, we see plenty of scope to increase returns.
“We are pleased to have secured this transaction in partnership with Patron Capital, another property investor which has complementary aspirations for the development of this portfolio.”
Keith Breslauer, managing partner at Patron Capital, said: “As a complex, distressed deal with potential to add value through creativity and active asset management, this opportunity fits our investment criteria perfectly. We are pleased to partner with Mountgrange and this investment is part of our previously announced intention to invest in over £1bn of assets in the UK.
“We believe significant opportunities exist in complex and distressed markets across Europe, and this deal follows on from our recently completed Uni-Invest transaction involving the resolution of a CMBS structure in the Netherlands.”
The aggregate 24-strong portfolio is quite distressed illustrating the significant asset management play for Mountgrange and Patron Capital, as well as CBRE Investors; the vacancy rate is 21.31 %, with a weighted average unexpired lease length of 6.9 years and has a total annual contracted rent of £17.25m. Tenants across the portfolio include Deloitte, HMRC, B&Q and Royal Mail Group.
The 24-strong Mercury portfolio is comprised of nine industrial assets, six offices, five warehouses, three retail properties and one mixed-use asset. The geographic mix comprises nine properties in the South East, six in London, three in both Scotland and the East of England, two in the South West and one in Scotland.
CBRE Global Investors seven acquired comprise three retail warehouses, two industrial estates and two warehouses in London and the South East.
Mercury’s most distressed individual assets include Metropolitan House in Birmingham, which has a 68.11% vacancy; Wexham Springs, 60.21% vacant; Pyramids Business Park, 68.94% vacant; Lochside Court, 40.15% vacant, according to the Hatfield Philips June quarterly investor report to bondholders.
The original wider Caspar portfolio comprised 62 assets, with 38 previous disposals including Gillingham Business Park, Blakelands Industrial Estate and Garrick Road Industrial Estate.