Starwood Capital, along with affiliate Starwood Property Trust, will close the $1.05bn acquisition of LNR Property next quarter, in a strategic acquisition which will expand the private equity firm’s European origination and distressed asset sales.
While the two-part purchase is a cash-only acquisition, Starwood has secured a $300m bridge loan from Citigroup and Credit Suisse to finance the short-term operational running of the LNR Property business lines.
Starwood emerged as the winning bidder at the end of October last year, beating off competition from underbidders Rialto Capital Management and BGC Partners, a Cantor Fitzgerald affiliate.
Citigroup and Credit Suisse are also joint financial advisors to Starwood Property Trust on the acquisition while Sidley Austin is legal counsel.
Lazard is acting as financial adviser to the private equity consortium owners of LNR Property, which is comprised of affiliates of Cerberus Capital Management, Oaktree Capital Management and Vornado Realty Trust.
Starwood confirmed yesterday afternoon that the giant acquisition comprises two major component parts, separately by Starwood Property Trust and Starwood Capital Group.
The first part is Starwood Property Trust’s $856m acquisition of six separate business lines, which includes LNR Europe, manager of the LNR European Investment Fund (LEI), and Hatfield Philips, Europe’s largest primary and special servicer.
Starwood said yesterday that LNR Europe’s Hatfield Philips business is “the main part of LNR’s operations in Europe” which generated more than $34m of fees in 2011, increasing to $45m last year.
The vast majority of Hatfield’s revenues are derived from its legacy contract with Lehman Brothers as its outsourced primary and special loan servicer for its Windermere CMBS conduit.
Starwood described the LEI fund, which is 50% owned by LNR, as in “harvest mode”, with $264m of unpaid principal balance secured by properties located across Europe, including Germany, Switzerland, the Netherlands, France and the UK.
In yesterday’s announcement, Starwood said that the acquisition of LNR Europe, and all its business lines, expanded its “ability to pursue European origination and distressed asset sales”.
The European component part is just a fraction of a much wider and complex acquisition which is also in the $856m tranche of the purchase: LNR’s US special servicing platform, which has more than $131bn in loans under management; its portfolio of legacy whole loans, CMBS and CDO investments, Archetype Mortgage Capital, Archetype Financial Institution Services and a 50% stake in Auction.com.
Starwood Capital Group’s part of the acquisition, on behalf of Starwood Distressed Opportunity Fund IX, is for $197m and comprises LNR’s US Commercial Property Group and the remaining 50% stake of LNR’s ownership interest in Auction.com.
Barry Sternlicht, Starwood Property Trust’s founder, chairman and chief executive officer, said: “We are delighted to announce this transformative and highly strategic acquisition that diversifies Starwood Property Trust’s revenue sources, adds significant scale to our operating platform and dramatically expands our proprietary origination capabilities.”
Toby Cobb and Justin Kennedy, co-chief executive officers of LNR, said: “This is a truly powerful combination and we look forward to continuing to grow the business.”