Citigroup and JPMorgan are the two finalists vying to acquire Deutsche Postbank’s circa €1.9bn predominantly UK commercial real estate loan book, codenamed Project Tower, in the second giant performing property loan book trade of the year, CoStar News understands.
The two US investment banks are understood to be through to the second round this week, after at least a six-strong list of first round bids were received on Friday 19 July, also including AXA Real Estate, Royal Bank of Canada, Goldman Sachs and Bank of America Merrill Lynch.
Citigroup and JPMorgan are expected to be analysing multiple strategies in the event of winning Project Tower. Such strategies are thought to include:
- buying-and-holding the loans to amass revenue for their balance sheets;
- a partial securitisation exit, seeking to profit from the spread between CMBS pricing and the weighted average margin of the securitised loan pool;
- refinancing maturing loans with borrowers, secure a margin step-up, and then some combination of the above two strategies as well as loan syndication and individual loan sales.
Deutsche Bank, which owns 93.7% of Postbank, accelerated the sale process in the last two months for the predominantly performing UK commercial property loan book and the lending platform after Germany’s largest bank assigned Postbank’s London property lending subsidiary to its Non-Core Operations Unit (NCOU) last November.
CoStar News was first to reveal Deutsche Bank’s planned sale of Postbank UK property loan book in mid-May.
The Project Tower sales process is being managed by Deutsche Bank’s New York office.
Deutsche Bank is aiming to sell Postbank’s loan book at par, with the highest bid from the first round thought to have reflected as much as 98 cents in the euro.
CoStar News understands Postbank’s €1.9bn loan book is comprised of 60-plus loans: around 85% of UK property loans, at around €1.6bn or £1.4bn, with the €300m, or 15%, balance secured by French and German commercial properties.
Less than 10% of the loans are thought to be impaired, with the majority of the performing book investment loans, two-thirds secured by London and South East properties, with the balance regional UK and the Continent.
The average margin across Postbank’s loan book is between 225 and 240 basis points, CoStar News understands, while the weighted average unexpired loan term is around 2.4 years.
Deutsche Bank is understood to have restricted itself from bidding on Project Tower on a pure revenue trade or for a capital market execution to ensure an equitable process is managed on behalf of the 6.7% shares which the investment bank does not own.
Private equity funds were restricted from entering the sale process.
Commerzbank is expected to confirm the closure of the sale of the Eurohypo’s £4bn loan book in two tranches to Wells Fargo and Lone Star on Friday.
All parties declined to comment.
Postbank UK: a conservative balance sheet senior lender in focus
Postbank, a balance sheet lender sourcing capital for lending through its German retail deposit savings business, tends to lend on a five-year term and clients include Argent, Brockton Capital, Quintain Estate and Almacantar. (See below for recent Postbank loans).
Since Deutsche Bank assigned Postbank’s UK loan book to its NCOU division last November, the London office is understood to have remained open for business – albeit much more selectively.
Postbank, the former German state-owned postal savings banks was established more than a century ago, gaining independence from state-management in 1990, before completing a full IPO, 14 years later.
Then on 12 September 2008 – just three days before Lehman Brothers finally filed for Chapter 11 bankruptcy in New York – Deutsche Bank acquired a 29.75% stake in Postbank for €2.79bn, reflecting €57.25 per share, with an option to subsequently acquire an additional 18.0% at €55.00 per share, equating to €1.69bn.
A third tranche – of 20.25% – was agreed to be sold at €42.80 per share. By the end of February 2012, Deutsche Bank’s stake in Postbank climbed to 93.7%.
Postbank’s recent UK senior lending deals
- In April, Postbank called in LPA receivers at Savills over developer HDG Mansur’s £255m Finzels Reach scheme – a part-completed, mixed-use regeneration project – after failing to make loan repayment on a development loan. Kevin Mersh and Julian Clarke at Savills have been appointed.
- In January, Postbank and HSBC extended two development loans, together worth £104m, to finance the construction of the residential schemes at Arthouse and 1 Canal Reach by Argent
- Last April, Postbank extended a five-year £42.75m senior loan to the iQ Property Partnership Fund, a Quintain Estates and The Wellcome Trust joint venture fund, secured by three UK student accommodation buildings at a margin between 275bps and 300bps over three-month LIBOR.
- Last July, Postbank financed two regional office acquisitions, Marlow International and Unilever House, with a five-year £61.7m senior debt facility shared equally with DekaBank. Margin is thought to be around 275 bps.
- Also last July, Postbank provides a share of a £60m three-year loan to finance £109m acquisition of CAA House and 1 Kemble Street by Mike Hussey’s Almacantar with Crédit Agricole CIB.
- Back in December 2011, Postbank provided senior debt to finance UK retail park acquisitions by a joint venture fund established by Brockton Capital and Pradera.