JPMorgan and Lone Star have won the Spanish commercial property loan book from the formerly-named Eurohypo, acquiring a broadly equal share of the nominal €4.4bn book with diverging investment strategies set to follow.
Commerzbank, which owns Hypothekenbank Frankfurt, the renamed Eurohypo, set the hurdle rate to acquire these loans very high reflecting its conviction that par could be achieved and that virtually no provisioning against these loans exists.
CoStar News understands that JPMorgan acquired the performing pools pools at in the high 80 cents in the euro range, or just under €2bn.
Lone Star, the largest winner of legacy sub and non-performing European commercial property loans in the post-crisis period, is believed to have paid as much as €1.5bn for the €2.2bn nominal pool, CoStar News understands.
Underbidders included Blackstone and Deutsche Bank, Apollo and Santander, and a joint venture bid by Cerberus, Goldman Sachs and Orion Capital Managers.
The closure of the deal will catapult JPMorgan, among the world’s best capitalised investment banks, into being one of the largest non-domestic Spanish commercial real estate lenders.
The primary investment strategy for JPMorgan is expected to be the refinancing of commercial property loans reaching maturity in the coming 12 to 24 months.
The extent to which Commerzbank’s hurdle rate for the performing pools enabled JPMorgan to reset the legacy loans – which carries a weighted average senior loan margin of around 120 basis points over three-month Euribor – remains unclear.
However, one strategy JPMorgan may seek to employ to offset any potential gap would be to incentivise borrowers to refinance early on slightly preferential terms than current market pricing.
While from Commerzbank’s perspective the powerbroker in the deal is the buyer of the narrowly-discounted performing pool, among the bidders the greatest competition lay in the more lucrative €2.2bn sub and non-performing pools split €1.3bn and €0.9bn, respectively.
For Lone Star, the circa €1.5bn price tag for the sub and non-performing loan pools reflects the private equity firm’s confidence in the speed at which the defaulted loan pool can be exited at a premium relative to the price paid to Commerzbank.
There is far greater optionality around the sub- and non-performing loans, given the covenant breaches, which will allow Lone Star to take ownership of assets and sell on as well as engage borrowers to agree fast discounted purchase offers (DPO) on the unpaid balance.
Above all, for both JPMorgan and Lone Star, their mutual need is to deploy capital amid rapidly increasing competition as well as improving rental growth and occupier market prospects.
Interest rate risk is broadly considered to be not a near term issue in Spain, with European Central Bank president Mario Draghi nearing a change of policy on Quantitative Easing (QE) to counter persistently low eurozone inflation when the governing council meets next month.
For a comprehensive list of all legacy Eurohypo Spanish loans in Project Octopus, please click here as published in Spanish newspaper Cinco Dias.
For CoStar News’ first detailed report on Project Octopus, please see here.
Separately, Davidson Kempner has won a pool of bilateral and syndicated loans held by Cosgrave Property Group in Ulster Bank’s Project Button, in one of the few loan portfolios on which no bids came in for the entire book.
CoStar News reported in detail the details of Project Button six weeks ago, which can be seen here.
All parties declined to comment.