Oaktree Capital Management has paid €675m for Nationwide’s Project Adelaide sub-performing granular German commercial real estate portfolio.
CoStar News understands that Oaktree’s price reflects an approximate 20% discount to the circa €850m outstanding balance with pricing near par to the real estate value of the underlying 200-strong retail and office property portfolio.
Oaktree beat Kildaire Partners and Cerberus to win Project Adelaide and is understood to be financing the loan portfolio with a loan-on-loan facility from AIG, the US insurance lender.
Project Adelaide is comprised of a granular pool of around 200 retail, office and industrial commercial properties throughout Germany, with 50 loan connections and each between €20m to €30m.
The final price for Project Adelaide – at near par to underlying real estate value – is indicative of an evolution in the strategy of some distressed investors which are prepared to generate returns without relying on purchasing loans at discounts to current value.
Optimistic rental growth forecasts, supported by strengthening occupier markets which enable easier rental uplifts through lease re-gearing as well as leasing up vacant space, enable investors to buy at current fair value, asset manage and sell on at premiums.
In some cases, the end game is to lend against the assets for eventual new owners, as with Marathon and its Project Chaminox and Project Aberdonia wins from Lloyds Banking Group.
The result for Nationwide is a huge turnaround in fortunes for its legacy commercial real estate exposure and a considerable surprise on the upside.
Two years ago, prior to summer 2012, the building society first attempted to sell its German commercial property loan portfolio and invited a handful of major private equity firms to bid on the then nearer €1bn loan portfolio.
Apollo, Lone Star, Cerberus as well as Deutsche Bank all priced the portfolio at a substantially deeper discount, reflecting less optimistic cashflow forecasts, a smaller weight of capital chasing such investments and greater exit strategy uncertainty.
But the process was quite challenging for bidders at the time because the dataroom was incomplete and included old information which made pricing difficult, which ultimately translated into additional discounting for uncertainty.
Nationwide suspended the sale ultimately because the building society could not afford to crystallise the losses implied from the loan portfolio pricing.
Fast forward to April 2014 and Nationwide probably surpassed its optimistic expectations of two years ago, driven by improving macro conditions, property fundamentals, weight of capital seeking deployment and pre-crisis levels of liquidity.
Deloitte sold Project Adelaide.
All parties declined to comment.