Cerberus pays €224m for ‘Project Monsoon’ Kaufland retail portfolio

Cerberus Capital Management has bought 10 Kaufland retail centres owned in a series of special purpose vehicles, formerly controlled by Geneva-based hedge fund Even Capital, out of administration for €224.4m, CoStar News understands. 

The portfolio, codenamed Project Monsoon, reflects a 41.2% discount, or just under 58 cents in the euro, on the outstanding €381.78m whole loan balance, for which the senior loan was securitised in RBS’ synthetic EPIC Drummond CMBS.

Brack Capital Real Estate, the US and European-focused real estate developer and manager, was the underbidder.

Cerberus acquired the distressed 10 Kaufland hypermarkets on an all-cash basis but is expected to finance the acquisition within the next month, at between 60% to 65% loan-to-cost, implying a financing ticket of up to €145m.

Cushman & Wakefield in Germany managed the sales process of Project Monsoon.

The Project Monsoon Countrywide Kaufland portfolio – predominantly located in the Saxony triangle region of Germany, Dresden, Halle and Leipzig – fell into administration after a Dutch court declared the 10 special purpose vehicles (SPVs), which owned the Kaufland hypermarkets, bankrupt last August.

CoStar News understands that the 10 SPVs were originally acquired by a consortium which was majority controlled by three investors, including Gallagher Developments.

The consortium acquired the 10 Kaufland retail centres and parks in a sale-and-leaseback from the anchor tenant for around €465m in April 2007, financed with a seven-year €411.5m whole loan – comprised of a €346m senior loan which was securitised in RBS’ 11-loan €1.1bn EPIC Drummond CMBS – and a €65.5m junior loan.

In October 2010, the consortium sold the 10 SPVs to Even Capital for 100 cents in the euro, at which point the problems were yet to manifest.

The balance of the whole loan fell to €381.78m by the April interest payment date (IPD) – comprised of a remaining €331.39m senior loan and a €50.39m junior loan.

However, there are estimated swap breakage costs of €22.2m, as of April 2013, according to a Barclays Capital analyst note yesterday.

In addition, Barclays Capital estimated around €24m in enforcements costs as well as €21m to compensate bondholders for a planned two-year delay in receiving net proceeds from the sale to Cerberus, with interest plus an assumed 120 basis points over three-month EURIBOR premium.

However, these estimates by Barclays Capital were published yesterday, based on an assumed €240m sales price. The €16m lower sales price, and longer time delay for bondholders to receive their recoveries, is likely to reduce enforcements costs by around 10% and increase interim bondholder margin compensation by the same proportion.

RBS, the loan servicer for EPIC Drummond, warned bondholders not to expect the return of their capital “until a date later than 27 July 2015,” as the additional potential capital is attempted to be recovered from the insolvent estate of the 10 SPVs.

Barclays Capital yesterday estimated a base-case loss for the Countrywide Kaufland loan of €162m.

Last October, Cerberus won Project Phoenix, comprised of nine secondary German retail properties, for €70m from a defaulted legacy Wachoiva loan sold by Wells Fargo through Eastdil Secured.

jwallace@costar.co.uk

About CoStar News

Finance Editor, CoStar News
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