Kennedy Wilson Europe Real Estate has entered into agreements to acquire the 21-strong ‘Jupiter’ portfolio, formerly owned by Moises and Mendi Gertner’s Fordgate, through receivership for £296m following its acquisition of the B-Loan underneath the securitised debt last month.
The direct portfolio acquisition is through enforcement of the Fordgate Commercial CMBS loan through Dudley Holme-Turner of Cushman & Wakefield and Simon Thomas from Moorfields Corporate Recovery LLP as fixed charged receivers and Mount Street, the special servicer which inherited the mandate through its acquisition of Morgan Stanley Mortgage Servicing.
CoStar News understands that KWE paid around £37m for the £119m B-loan from lenders including French investment bank Natixis.
The portfolio’s value has fallen considerably from its October 2006 valuation of £482.9m when Morgan Stanley securitised the legacy Fordgate debt.
The 2,449,189 sq ft 21-strong portfolio comprises large secondary assets let to financially strong tenants with the assets generally geographically well-located within their respective submarkets, especially those in Aberdeen.
Jupiter comprises 21 assets located across the UK, including nine offices, two mixed, five car showrooms, three leisure, one retail and one warehouse, where the top seven assets represent 84% of the total value of the portfolio.
The portfolio currently delivers gross rental income of £25m per annum, of which 47% is from Scotland and 74% is from the office element. The portfolio is let to a number of blue chip companies including HSBC, Chevron UK, Conoco and the Secretary of State for the Environment, with the top six tenants accounting for over 50% of the gross rental income from the Portfolio.
The portfolio is currently let on 167 leases, with a weighted average unexpired lease term of six years to break, and has a vacancy rate of approximately 10%, providing numerous opportunities for income enhancement through letting up vacant space.
Overall, the portfolio has a vacancy rate in the mid 20% range, with more than 50%% of the lease income is due to expire over the next four years.
Mary Ricks, President and CEO of Kennedy Wilson Europe, said in a prepared statement: “This transaction illustrates our unique ability to invest across asset class, capital structure and different instruments to access and control quality real estate assets.
“The highly visible and secure income, complemented by strong underlying tenancies, together with a number of asset management plays, including leasing efforts, which we have already identified in the portfolio, make this an extremely attractive investment for us.”
Paul Lloyd, managing partner of Mount Street explained the process: “The loan has been under the spotlight since 22 October 2013 when it transferred into special servicing following the loan maturity default. Both noteholders and the two junior lenders would no doubt have been concerned about recoveries following the November 2013 portfolio valuation of £248m (almost half of its original £482.9m value in 2006), although the sales price of £296m would see a full recovery to the noteholders and partial recovery for the B junior lender.
“In mid-March, Natixis began marketing their £119m B1, B2 and B3 loan position that they ultimately sold to Kennedy Wilson on 6 May 2014. During this sales process, Mount Street initiated enforcement proceedings on 24 April 2014. Dudley Holme-Turner of Cushman & Wakefield and Simon Thomas from Moorfields Corporate Recovery LLP were appointed as fixed charged receivers over the English properties and calling up notices were issued by Mount Street in relation to the Scottish assets.
“Following enforcement, Mount Street retained Fordgate and Mayfield Property Management as the asset manager and property manager respectively and Dougray Smith were appointed as land agent to undertake a marketing campaign(on behalf of Mount Street, the Borrower Security Trustee) of the Scottish assets.
“With contracts exchanged last Friday, the process has seen a resolution within six weeks following enforcement of the loan and four weeks following Kennedy Wilson’s acquisition of the B1, B2 and B3 loan positions.
“Not only has this been a timely resolution of a diverse UK secondary portfolio, the outcome was as a result of Mount Street’s effective management of a wide spectrum of interests including a defaulted borrower, junior lenders in a seemingly out of the money position and significant interest and anticipation from investors and the market.
“The positive outcome demonstrated how, within 3 months of buying Morgan Stanley Mortgage Servicing, Mount Street have delivered the optimum resolution to creditors in a complex CMBS structure.”