Lone Star is attempting to win control of Coeur Défense in Paris by negotiating a consensual discounted pay-off with creditors and a recapitalisation of the special purpose vehicle (SPV) which owns the 1.9m sq ft sprawling office complex, CoStar News can reveal.
CoStar News understands that Lone Star has a strategic foothold to secure Coeur Défense ahead of other interested investors, including Blackstone, AXA Real Estate Investment Managers, Allianz Real Estate, Perella Weinberg and Tishman Speyer.
It is thought that Lone Star’s advantageous position relates to a stake in the legacy equity in Heart of La Defense (HOLD), the SPV which acquired Coeur Défense from Unibail-Rodamco and Goldman Sachs Whitehall Funds for €2.1bn in March 2007.
The legacy equity was majority-owned by LBREP III, the Lehman Brothers private equity real estate fund, and Atemi, the French asset manager, and GE Pension Fund.
Recapitalising HOLD through buying shares in the SPV would circumvent the 5% tax transfer due on change of ownership saving up to €80m, depending on the agreed valuation of Coeur Défense.
The “safeguard proceedings” which has protected against creditor enforcement over Coeur Défense, under French law, are due to expire on 10 July 2014.
Ahead of which, and likely within the coming weeks, Lone Star is seeking to negotiate a discounted pay-off with the combined €1.64bn senior and junior creditors in line with a fair value of the office complex.
Coeur Défense is prime investment play for an opportunistic-style investor, given the 23.9% vacancy rate and dwindling lease profile of just 3.2 years to first break clause and 5.3 years on a full lease expiry basis.
If Lone Star’s strategy is successful it will enable an early exit from the safeguard proceedings after which the legacy debt stack will be refinanced.
Thereafter, the private equity firm will undertake an aggressive asset management strategy to re-gear maturing leases, invest capex and lease up vacant space before a probable exit to a sovereign wealth fund or insurance company seeking to match long-term assets with liabilities.
Coeur Défense’s legacy debt is comprised of the €1.52bn Windermere XII CMBS and €119.95m in unlisted junior notes across three-tranches.
Excalibur, the legacy Lehman Brothers collateralised debt obligation (CDO) which Lone Star acquired in two tranches in January and April 2012, included a Coeur Défense junior debt tranche but at the time Lone Star declined to acquire it, CoStar News understands.
Against the total €1.64bn of outstanding debt, the last public valuation of Coeur Défense was carried out eight months ago by DTZ Eurexi, at €1.28bn.
In the intervening period, the lease profile of the office complex has continued to run-off offset by an improvement in sentiment, occupier markets and wider property fundamentals.
Defining a fair market value for Coeur Défense, therefore, is complicated and there are differing outlooks on the occupier market in the La Défense business district, as well as contrasting economic interests between Lone Star and creditors seeking a return on their capital.
Based on the many variables, Coeur Défense could be valued anywhere between €1.3bn and €1.5bn, dependent on the assumptions applied.
The single largest creditor is Perella Weinberg, which acquired around €600m of senior CMBS notes in Windermere XII in October 2009 at a steep discount from Goldman Sachs.
Perella Weinberg, which has retained its position for more than four years, had previously harboured ambitions to acquire the direct asset. Credit Foncier is the only remaining creditor from the original subscriber base of the €1.52bn Windermere XII transaction.
Last summer, Morgan Stanley and Rothschild were lined up to be joint advisors on the sale of Coeur Défense but their appointment was never finalised.
Lone Star declined to comment.