Valad Europe has been appointed to asset manage and dispose of a six-strong German office property portfolio formerly owned by the Fortress Investment Group-controlled Eurocastle Investment.
Hatfield Philips International (HPI), the special servicer for the outstanding €370.1m Bridge Whole Loan which matured on 14 January, has replaced the Eurocastle-controlled asset manager over the Bridge portfolio, after consensual loan restructuring and extension talks broke down.
Eurocastle, an Amsterdam-listed, closed-end commercial real estate investment manager, initially attempted to broker a three-year loan extension with HPI to January 2017 but consensual talks ended after declining fresh equity in the restructuring plan.
Lehman Brothers financed Eurocastle’s €481.8m acquisition of the Bridge portfolio with a €372.1m whole loan, inclusive of an interest-only €30m junior loan, in October 2006 and spun the €342.1m senior loan into the failed US investment bank’s Windermere X CMBS transaction.
The Bridge portfolio was last valued at €325m in September 2013 while the outstanding whole loan is comprised of €340.1m senior loan and the €30m junior loan.
In the subsequent seven months, the value of the assets will have altered in line with a mix of competing influences: yield compression at the property level, albeit German real estate markets tend to historically be less correlated to the recovery spikes in other parts of Europe, maturing leases and bespoke asset circumstances.
HPI yesterday confirmed the appointment of Valad Europe to implement a range of disposal and lease re-gearing strategies to maximise net proceeds to bondholders and the junior lender, within a relatively swift time horizon.
The Bridge office portfolio is comprised of:
- the 44,278 sq m Galluspark office in Frankfurt;
- the 17,279 sq m Am Unisys-Park 1 office in Sulzbach;
- the 48,073 sq m Alt Moabit 91 office in Berlin;
- the 11,953 sq m Kaiserswerther Str. 117 – 119 office in Düsseldorf.
- the 40,223 sq m Alfred-Herrenhausen-Allee 1 office in Eschbom;
- the 29,740 sq m Abraham-Lincoln-Park 1 office in Wiesbaden
Valad Europe is to follow a mix of strategies across the six German offices. The first two offices listed above, in Frankfurt and Sulzbach, are both fully-let to single tenant assets with a weighted average unexpired lease term (WALT) of 11.3 and 9.3 years, respectively.
Galluspark in Frankfurt is virtually entirely let to Deutsche Bahn, which takes 42,894 sq m, paying €4.98m pa, expiring end of December, 2024.
Am Unisys-Park 1 in Sulzbach is let to Clariant GmbH over two leases: a 1,562 sq m lease which expires 31 May 2016 and the balance to 31 March 2019, for a combined €1.65m pa.
Valad Europe is expected to bring these two assets to market in the near-term with a targeted disposal by the year end.
The next pair of assets, based on the list above, the Berlin and Düsseldorf offices are both multi-let with a WALT of 3.1 and 3.5 years, respectively, and 8.8% and 10.9% vacancy rates.
Alt Moabit 91 in Berlin is comprised of the following tenants:
- Texas Instrument Berlin, paying €791.5m pa for 3.9m sq m, expiring May 2016;
- DAK, paying €563k pa for 563k sq m, expiring 31 July 2013;
- AVM, paying €513k pa for 4.3k sq m, expiring 31 March 2017.
Kaiserswerther Str. 117 – 119 office in Düsseldorf is let to tenants including:
- Hoffman, Liebs, Fritsch, paying €612k for 2,754 sq m, expiring 31 March;
- Showroom Betriebsgesellschaft, paying €198k for 1,088 sq m, expiring 30 April 2014.
Valad Europe is expected to seek to improve on the WALT and occupancy levels and sell in an improving market, with disposals likely before the year end.
The final two assets, in Eschborn and Wiesbaden, are the most challenging.
At Alfred-Herrenhausen-Allee in Eschborn, the headline lease is entirely let to Vodafone, for its German headquarters, which pays €7.2m pa, expiring in September 2017.
Vodafone has confirmed its intention to leave at the end of its current lease, however, the mobile phone giant has already sub-let part of its space to multiple tenants. Valad Europe is expected to seek to secure fresh headline leases with the current Alfred-Herrenhausen-Allee sub-let tenants as part of a wider leasing programme.
Tax incentives are offered by the government for companies to locate in Eschborn, a submarket within Frankfurt, at as much as a third of equivalent prime Frankfurt CBD rents. However, the lettings markets have remained challenging in recent years with offices vacancy levels at near 20%.
Finally, at Abraham Lincoln Park in Wiesbaden, CSC Ploenzke is seeking a lease extension aligned with a shrinkage of space taken, requiring Valad Europe to negotiate with the current sublet tenant before a disposal before year-end 2015. CSC Ploenzke’s current lease, paying €5.5m, expires on 31 March 2017.
In a prepared statement, Andreas Hardt, Valad Europe’s head of Germany, said: “We have been appointed with a clear remit to increase the weighted average lease term, reposition existing tenants and introduce new tenants, as well as maximise value through the disposal of either individual or portfolios of assets.”
Christian Bearman, chief operating officer of Valad Europe, added: “Our appointment on the Bridge Portfolio is a further endorsement of Valad Europe’s track record in managing complex workouts for banks, noteholders and receivers across Europe.
“Over recent years we have been appointed on over €1.5bn of bank workout and CMBS mandates with highlights including two German retail CMBS mandates, the Landmark and Dutch Offices I & II portfolios in the Netherlands, the Gemini CMBS mandate in the UK, the Kefren Properties portfolio in Sweden and the ECREL portfolio across Germany, the Netherlands and the Nordics.”