Bidders emerge on legacy IBRC portfolios amid €27bn frenzy of live European property loan sales

Europe’s real estate loan portfolio market has entered its most frenetic period as finalists emerge on the legacy IBRC portfolios, projects Salt and Rock, as private equity, hedge fund and investment banks pore over as much as €27.7bn in live loan portfolio deals in a frenzy of de-leveraging activity.

ibrc-logoCoStar News understands that a joint bid by CarVal Investors and Goldman Sachs’ Special Situations Fund has progressed to the final on the £1.46bn Project Salt portfolio in competition with Cerberus Capital Management, Oaktree Capital and Lone Star.

The two-tranche Project Salt is the only IBRC loan portfolio in the sell-off process, managed by special liquidators KPMG, which is not restricted by caps on future cash flows and asset valuation discounts. This is because Project Salt loans were originated in the UK within two subsidiaries which are not part of liquidation proceedings, IBRC Property Lending Limited (IPL) and IBRC Asset Finance (IAF).

Project Salt is comprised of 609 loans to 233 borrowers, which include 91 separate borrower connections, with a gross loan balance of £1.46bn, against a quoted real estate value of £914m across 350 properties, which implies Salt’s aggregate LTV is 159.7%.

Project Salt is expected to trade at a discount to the quoted real estate value of £914m, dated July 2013. CoStar News wrote a detailed report on the Project Salt portfolio back in November, which can be seen here.

Lone Star – which has bid across all five loan portfolios which additionally comprise the €9.3bn Project Stone, the €1.8bn Project Sand, and the €0.8bn Project Pebble – is thought to be the only bidder which has submitted for the entire £4.82bn Project Rock.

A raft of bidders for individual loan tranches and bespoke pools of tranches have also been submitted on Project Rock by Cerberus, Kennedy Wilson, Starwood Capital, Oaktree and Marathon Asset Management as well as the underlying borrowers seeking to buy back their own debt at varying discount levels.

Project Rock is comprised of 816 loans from 319 borrowers and 217 borrower groups with a gross unpaid balance of £4.82bn, against a recorded real estate value of £3.94bn.

Project Rock is comprised of 14 separate tranches: the first three tranches are large multi-borrower sub-pools with a combined gross unpaid loan balance of £2.6bn, while the remaining 11 tranches consist of individual borrower group tranches, many with multiple underlying loans, and make up the £2.2bn balance.

By geography, Rock is 86% UK, 7% US, 3% in each Germany and Northern Ireland while Ireland, Sweden, Spain and Hungary together making up the balance with 1% or less.

By sector, Rock is weighted to hotels, mixed-use and leisure properties, with 24%, 22% and 21%, respectively, based on carrying real estate value. These three segments amount to £2.5bn of real estate value, or just under two-thirds of Rock’s total portfolio by property value, at 63.8%.

Back in December, CoStar News wrote a detailed report on what is inside Project Rock, which can be seen here, as well as a separate report on the standalone hotel tranches, which can be seen here.

CoStar News understands that the €9.3bn Project Stone IBRC loan portfolio, for which the deadline for final bids are now due in early March, is expected to receive bids from Deutsche Bank, Lone Star, Apollo and Cerberus as well as a consortium comprised of CarVal Investors, Goldman Sachs’ Special Situations Fund and Pepper Asset Services.

The 12-tranche Project Stone is a heavily distressed commercial real estate loan portfolio, with 42% of the gross unpaid balance, or €3.9bn, secured by Irish assets; 40%, or €3.7bn, secured by UK assets; 15%, or €1.39bn, secured by Continental European assets; with the 3% balance, or €279m, secured by properties in the rest of the world.

The level of distress in Project Stone is thought to vary, with the Irish component around 20 cents in the euro, while the UK portfolio likely above 60 cents.

It remains to be seen whether pricing submitted by bidders aligns with the pricing hurdle restrictions imposed by Michael Noonan, Ireland’s Minister for Finance, on 10 May last year. These restrictions require bidders to cap the discounts on future cash flows and asset valuations to 4.5% and 2.32%, respectively.

IBRC’s €1.8bn Project Sand is thought to be a two horse race between Lone Star and Oaktree Capital, CoStar News understands while bids on the fifth and final IBRC property loan portfolio, the €0.8bn Project Pebble, are still unclear at this stage save for Lone Star’s bid.

Project Sand is comprised of residential mortgage loans predominantly secured on Irish collateral with a gross loan balance of circa €1.8bn, while the €800m Project Pebble loan portfolio is comprised of commercial real estate loans originated through the Irish offices of IBRC.

There is one borrower connection on Project Pebble, which is Paddy McKillen, a separate report on Project Pebble can be viewed here.

NAMA launches €1.8bn Project Tower, RBS ready €850m Irish CRE loan portfolio

Separate to the KPMG-managed IBRC loan portfolio sales process, NAMA is understood to have finally returned the delayed Micheal O’Flynn loan portfolio to market this week, with a select group of private equity firms and investment banks invited to bid on the process known as Project Tower.

CoStar News understands that last summer Micheal O’Flynn approached five potential investors – Lone Star, Apollo, Blackstone, Cerberus and Starwood – over the acquisition of its performing property loan book in NAMA, which then amounted to around €1.8bn.

Last October, Lone Star bid more than €1bn for the O’Flynn property loan book, according to the Irish Independent.

However, the process stalled and in the subsequent four months, O’Flynn has sought to persuade NAMA to not include the senior loans secured by his UK student accommodation portfolio, which would have shrunk the loan book to around €1.3bn.

NAMA is thought to have decided to keep the book at its original €1.8bn size and has so far invited around half a dozen investors to bid for the loan pool, now dubbed Project Tower. The data room opened on Monday.

CoStar News understands the investors which has so far been invited to view the data room include Lone Star, Goldman Sachs, Blackstone, Apollo, Cerberus and Deutsche Bank.

Also in Ireland, RBS is expected to push the start button on its accelerated Irish commercial real estate de-leveraging within its Ulster Bank subsidiary, with both a loan portfolio and a direct property portfolio expected to come to market. The RBS loan portfolio, which is being sold by Eastdil Secured, is thought to be between €850m and €1bn.

Further details are expected on the vision for RBS’ Ulster Bank subsidiary and indeed the new bad bank, RBS Capital Resolution, on Thursday 27 February when RBS publishes its 2013 annual results.

In addition, PIMCO lodged a reverse inquiry with NAMA for the Irish bad bank’s €4bn Northern Ireland loan portfolio prior to last Christmas which could trigger yet another major loan auction process.

On Monday, Hibernia, Ireland’s second incorporated REIT, acquired a €150m Ulster Bank senior loan for €67m, secured by a multi-family portfolio formerly owned by Dorville Homes, reflecting a 55% discount, CoStar News understands.

The loan was secured by 17 assets of varying sizes, all of which are located in Dublin except for two. The centrepiece asset is the partly-completed multi-family residential block at Wyckham Point, Dundrum, Dublin 16, which has 213 units. When fully let, Wyckham Point is expecting to offer €3.5m in gross annual rent and will deliver a 6% net initial yield.

Last week, CoStar News also reported on the €225m NAMA Project Drive loan portfolio, comprised of loans to Brian O’Farrell’s N1 Property Developments. EY is selling Project Drive.

Nationwide’s €850m Project Adelaide offered to circa 15 bidders

Last week, Nationwide’s €850m German sub and non-performing granular commercial property loan portfolio came out, Project Adelaide, in a selective blind auction process comprised of more than 15 invited bidders.

The long list of invited bidders on Project Adelaide is thought to include Lone Star, Apollo, Pimco, Oaktree Capital, Fortress Investment Group, Starwood Capital, Marathon Asset Management, BAML, Deutsche Bank, TPG, Goldman Sachs, Colony Capital and Davidson Kempner.

Project Adelaide has a granular underlying collateral asset pool comprised of around 200 assets spread throughout the country and a diversified mix of retail and offices, as well as other asset classes.

CoStar News reported on the process at the end of January, which can be seen here.

Deloitte is selling Project Adelaide. First round bids are due in in early March.

On the Continent, Commerzbank is selling the formerly-named Eurohypo subsidiary, the €4.4bn Spanish commercial real estate loan portfolio, dubbed Project Octopus, while Lloyds is down to a four-strong shortlist of BAML, Starwood, Marathon and Cerberus on the €600.1m Project Aberdonia.

All of which activity makes this the most frenetic period for European property loan portfolio sales with an estimated €27.74bn in live loan portfolio sales, according to data compiled by CoStar News.

In addition to which, there is the slow-burning potential sell-off of the €11.8bn West Immo performing property loan book, which could feasibly sell or continue to stall, if included, the total of live European property loan portfolios rises to an astonishing€39.94bn.

CoStar News reported in January that PIMCO has been evaluating a possible bid since last autumn, as well as ING Real Estate Finance, while two US investment banks are also thought to be keen.

All parties declined to comment.

jwallace@costar.co.uk

About CoStar News

Finance Editor, CoStar News
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