Starwood Capital and M7 Real Estate will launch a circa €85m request for financing early next month to refinance the inherited debt securing the just-acquired 36-strong light industrial Tamar European Industrial Fund (TEIF).
The Starwood-led acquisition of the majority French light industrial portfolio is expected to centre on re-gearing and leasing up the remaining portfolio, which was 76.7% occupied as at 31 March 2014, and refinancing the inherited debt on significantly improved terms.
The shares in TEIF, the closed-ended listed pan-European fund, were acquired for €130m through Lux Starlight, wholly-owned by the €500m MStar Europe II, which is 95% owned by Starwood Fund IX and 5% owned by M7 Real Estate.
Starwood and M7’s share acquisition of the fund, which will complete a de-listing early next month, comprised a cash consideration of £53.55m (€66.7m) as well as inheriting the existing debt, which had an unpaid balance of €67.2m as at 16 April
The majority of the remaining debt – €60.1m at 16 April – is held equally by Deutsche Bank and Macquarie Bank, who jointly refinanced TEIF on 13 December 2013 with a 20-month loan to facilitate the closed-ended fund’s wind-up, at an all-in cost of 6.75%.
The facility, which has a maturity of 20 July 2015, was structured with margin reductions upon completion of business plan targets including asset disposals and reduced leverage.
In addition, TEIF has a remaining €7.1m BNP Paribas loan secured against three of the fund’s assets, which is scheduled to mature in October 2016.
Starwood and M7 have sounded out initial interest for a 65% LTV five-year senior loan for the pan-European portfolio, which based on a carrying valuation of €130m, implies a loan of €84.5m. A margin of around 250 basis points over three-month Euribor is the expected range for the senior loan.
A small number of pfandbrief banks have already been approached to test early interest but this is expected to be extended more formally following the de-listing of the fund next month.
The creation of MStar Europe follows the June 2013 launch of the UK-focused MStar, which was the ﬁrst joint venture between Starwood and M7 Real Estate and which has acquired 27 assets in the UK.
In total, MStar Europe II fund, established in April 2014, has amassed a €258.7m pan-European portfolio comprised of 55 properties across five Western European countries.
In addition to the TEIF buy-out, these include the acquisition of a 10-strong warehouse portfolio in the Netherlands from Rockspring for €71m and the purchase of five light industrial properties in Germany from a fund advised by Valad for €44.7m.
Adam Shah, senior vice president, Starwood Capital said in a statement: “These transactions are a continuation of our successful platform in the United Kingdom in acquiring light industrial real estate. These assets have strong existing cash flows in place and we expect to drive additional value to the portfolio through our shared expertise in managing these assets.
Starwood and M7 are targeting a €500m light industrial portfolio. MStar Europe is Starwood’s second joint venture with M7 Real Estate after MStar, the UK-focused vehicle that has acquired 27 properties with a value of £70m since its launch in June 2013.
Richard Croft, M7 Real Estate’s chief executive, said: “We set up MStar Europe to seize the opportunities that we identified in Continental Europe to assemble a portfolio of high-yielding multi-let assets, some of which require active and creative management. The speed with which we have deployed capital validates that strategy.”