CLS Holdings wins Project Neo government office portfolio for £120m

CLS Holdings, which manages almost £1bn of UK and European property, is to pay just under £120m for Project Neo, the 34-strong former Wichford Government Income Portfolio (GIP), winning ahead of six private and public equity investors, CoStar News can reveal.

CLS Holdings logoCoStar News understands that CLS, which has a commercial property portfolio across the UK, Sweden, Germany and France, paid around £2m above the second-highest bidder for the portfolio through a blind auction.

Bids came in around 10 days ago with from a raft of investors, including Mountgrange, Oaktree, Telereal Trillium, Kennedy Wilson, Cerberus and Lone Star.

Project Neo was sold by Geoff Rowley and Philip Watkins at FRP Advisors, who were appointed as fixed charge receivers in January, after Hatfield Philips, the special servicer of the defaulted legacy Lehman Brothers’ Windermere VIII CMBS loan enforced against the original 38-strong portfolio.

CoStar News that CLS Holdings was confirmed as the winning bidder yesterday.

The portfolio is a logical fit for CLS which has a diversified tenant base across its £934.5m property empire, including 40% of its annual £68.3m rental income from government tenants, according to its 2012 annual results.

Project Neo is, however, not a straightforward acquisition, with the two-thirds of the portfolio’s leases containing break clauses before the end of 2018 and there is some doubt that the government, which is intent on reducing its national real estate occupancy levels, will re-gear.

Among the tenants, however, are job centres, HMRC calls centres and police authority offices, which could be spared from the most severe of the space cut backs.

CLS’ investment could include a degree of asset repositioning – the extent to which that will be required is not yet fully determinable.

Wichford acquired the original portfolio in the summer of 2005 for around £270m, financed with a £264.3m seven-year whole loan, of which, the £199.7m senior loan was securitised into Windermere VIII CMBS.

Redefine International acquired control of GIP after its take-over Wichford in July 2011.

The loan transferred into special servicing last October after defaulting at maturity.

Two of the four assets ring-fenced for individual sale have also sold, St George House in Leeds for £8.6m and Rufus House in Carlisle for £1.3m, with the final properties expected to sell in time for the October IPD.

The Government Income Portfolio Mortgage Loan had an outstanding balance of £177.2m at the July interest payment date, which is inclusive of the proceeds from the two sold assets individually.

Based on a sale to CLS at circa £120m, plus the £9.9m from the two individual asset sales, and the likely recovery from the final two granular assets by October, value will break deep into the original £199.7m senior loan, while the £64.6m B-Loan is out-of-the-money.

All parties declined to comment.

About CoStar News

Finance Editor, CoStar News
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