Fortress Investment Group closed the purchase of the €1bn Project Vermeer from Morgan Stanley on Friday, CoStar News understands, comprising a 64-strong secondary quality Continental office portfolio which has suffered rising vacancy rates in the last five years.
Fordgate Group, the property company which manages the global real estate assets of the Gertner family, acquired 53 Dutch properties and refinanced 12 already-owned properties, in a portfolio known as Project Vermeer, with a seven-year €1.05bn whole loan by Morgan Stanley on 29 May 2007.
Fortress has appointed Spring Real Estate, an Amsterdam-based commercial real estate asset manager, to manage the business plan for the Project Vermeer portfolio.
Morgan Stanley’s whole loan, secured by the 65-strong portfolio, was comprised of €695m senior loan – securitised in Morgan Stanley’s Xuthus (European Loan Conduit No. 29) CMBS in February 2008 – and a €354.11m B-Loan.
While the discount at which Fortress acquired the Project Vermeer loan is not known, CoStar News understands that the unpaid circa €334m B-Loan is out-of-the-money.
Value is thought to break considerably in the former three-class waterfall, given the spike in vacancies from 15.8% in May 2007 to 40.95% by the November 2012 IPD – the last available quarterly investor note before Morgan Stanley collapsed the Xuthus ELoC 29 CMBS structure.
Project Vermeer comprised 36 Dutch properties, 12 Belgium assets, 10 German assets and 7 Swiss assets valued at €1.2bn by Colliers CRE and Savills in May 2007, reflecting a whole loan LTV of 87.5% at funding.
The 65-strong portfolio comprised 224 tenants, with an initial gross rental income of €73.7m, including rental guarantees. In the intervening years, one asset has been sold.
Project Vermeer portfolio’s vacancy rate was originally 15.8% in May 2007, excluding the cash rental guarantee from the vendor, which spiked to 40.95% by the November 2012 interest payment date (IPD), while annual rental income had fallen substantially to €51.7m inclusive of the run-off in vendor guarantees.
Last June, Morgan Stanley – which is understood to have retained a large proportion of the CMBS notes as well as the €354.11m B-Loan given the evaporation of liquidity at the time – collapsed the Xuthus (ELoC No. 29) CMBS structure, converting noteholders into loan participation.
Lone Star and BlackRock were understood to be among the CMBS noteholders before the conversion to loan participation.
Fitch Ratings, in a note issued last June, suggested Morgan Stanley’s motives for collapsing the CMBS structure was “to offer greater flexibility to creditors in negotiating with the borrower”.
Indeed, this allowed for Morgan Stanley to conduct its negotiations with potential buyers of Project Vermeer without public voting disclosures for noteholders.
All parties declined to comment.