Praxis Real Estate is the frontrunner to buy the Britannica fund, paying just over £250m for the seven UK secondary shopping centres and edging out Kennedy Wilson, in a deal which is expected to crystallise a near £100m loss to the three-bank syndicate.
Grant Thornton, the Britannica fund’s receiver which kicked-off the sales process around six weeks ago, has selected Praxis’s bid ahead of nearest competitor Kennedy Wilson, which also bid near £250m, in a fiercely-contested blind auction for the deal codenamed Project Panther.
The rest of the underbidders – LaSalle Investment Management, which is bidding on behalf of the Mars Pension Fund, JPMorgan, PIMCO and New River Retail through their joint venture fund, Tristan Capital Partners and Ellandi, as well as F&C REIT Asset Management – are understood to have bid under £250m.
A sale of Project Panther at circa £250m would reflect around a 9% net initial yield, CoStar News understands.
Praxis, an underbidder on the Ruby portfolio last November, is thought to be either acquiring the assets directly or the holding companies which own them, and are expected to seek to complete the acquisition through a structured finance deal comprised of a syndicate of lenders, including possibly mezzanine debt and hedge fund capital.
Praxis sources its equity from a group of Monaco-based high net worth individuals with a separate financial investor likely to form part of its equity stake in closing Project Panther.
The Britannica fund’s seven shopping centres have an outstanding senior debt balance of around £320m, which is approximately 60% held by ING Bank, or circa £192m, while Eurohypo owns around 30%, at £96m, and the 10% balance, or £32m, is held by Deutsche Hypo.
In addition to the outstanding senior debt balance is an interest rate swap, which ranks ahead of the senior debt upon repayment, which has a circa £25m mark-to-market, plus around £2.5m in fees to market the sale of the Project Panther portfolio.
Based on which, a sale at circa £250m against a total liability of £347.5m would crystallise a £97.5m loss, likely proportionally shared by ING Bank, Eurohypo and Deutsche Hypo.
CoStar News first revealed Project Panther’s long list of bidders two weeks ago, with the portfolio comprising County Square in Ashford, The Strand, Bootle; The Gates, Durham; Rivergate, Irvine; The Haymarket Centre, Leicester; The Spindles and the Town Square, Oldham (counted as two assets); and Swansgate, Wellingborough.
ING Real Estate Investment Management (REIM), which established the 10-year Britannica shopping centre fund in March 2005, financed the acquisition of the original nine assets, then valued at circa £550m, with around £360m of senior debt led by ING Bank, also including Eurohypo and Deutsche Hypo.
The value of the shopping centre portfolio rose and fell with the current of property markets, with Britannica peaking at around £700m in mid-2007, before collapsing in line with the subsequent two-year capital value descent in which secondary assets lost more than 50%.
CBRE Global Investors inherited the Britannica Fund as part of its $900m acquisition of ING REIM’s European funds at the end of October 2011, but the fund fell into administration last September, after the portfolio’s value plummeted to below the outstanding debt.
Majority senior debt lender to the Britannica fund, ING Bank, called in the receivers last September after a series of covenant breaches, appointing Grant Thornton’s Malcolm Sheirson and Daniel Smith.
The poor performance of the Brtiannica Fund has led to significant under investment in recent years which has seen vacancy levels rise leaving a clear distressed investment play for winning bidder, Praxis.
Last mid-November, Grant Thornton quoted an estimated value of the then eight remaining assets of £280.9m, against an estimated recovery value of £250.9m and an outstanding senior balance to the three senior lenders of £328.1m, according to accounts filed at Companies House.
Eurohypo’s senior loan participation is likely to be part of the impaired pool which is expected to trade to Lone Star by the end of the second quarter, although this loss is expected to be crystallised before the deal closes with Commerzbank.
All parties declined to comment.