Oval Real Estate emerges as mystery winner of Project Neopolitan

Oval Real Estate has emerged as the mystery buyer of the 10-strong Project Neopolitan sub-pool for £35.06m, CoStar News has learned, which triggered a final six-month extension of the securitised legacy Lehman Brothers Windermere XI CMBS loan.

Based on an annual rental income for the 10 assets of £4.7m, the £35.06m sale price reflects a net initial yield of 12.5%.

CoStar News understands that there were originally 10 first round offers for Project Neopolitan, including a mix of quoted property companies, institutional investors and hedge funds.

The second round narrowed to just five which, in addition to Oval Real Estate, included CBRE Global Investors and Telereal Trillium.

Redefine International completed the consensual part disposal of assets – also dubbed the Delta portfolio – 10 days ago, which reflected a 12.4% premium to its book value, according to Redefine.

However, according to the most recent valuation – dated 31 May 2012 – the 10 sold assets were valued at £33.09m, which implies the sale price was a 6% premium. 

For Hatfield Philips International (HPI), the primary servicer of the Government Income Portfolio (GIP) Mortgage Loan, the net recoveries are clearly a positive outcome for noteholders.  

The assets sold were:

  • St. Clare House, Princes Street, Ipswich;
  • Cooper House, 59 Peel Street, Barnsley;
  • Transpennine 200, Pilsworth Road, Heywood;
  • Temple Street, Wolverhampton
  • Tweedale House, 75 Union Street, Oldham;
  • Hedgerows Business Park in Chelmsford         
  • 71-73  King Street in Wigan
  • Prudential Buildings, 36 Dale Street in Liverpool,
  • 80 Hanover Way in Sheffield,
  • 31-49 Newfoundland Street & 1 Newfoundland Court, Bristol

Net proceeds from the majority Project Neopolitan disposal will reduce the outstanding balance on the GIP Mortgage Loan to under £40m – the threshold pre-agreed between Redefine and HPI two years ago to qualify for a further loan extension, as part of the CMBS loan’s consensual restructuring.

The GIP Mortgage Loan now has just three remaining assets – Kirkstall Road in Leeds, 63-65 Breton Side in Plymouth and 2 Duchess Place in Edgbaston.

The final three assets have a current carrying valuation of £16.0m, however, the weighted average unexpired lease is understood to be shorter than for the 10 assets sold to Oval Real Estate, therefore, achieving another premium will be more challenging.

Assuming a sale at near the carrying £16m, the net recoveries to noteholders is expected to crystallise an estimated £22m loss on the GIP Mortgage Loan, according to calculations provided to CoStar News.  

This loss is an improvement on the forecasted recoveries estimated two years ago at the time of the initial loan restructuring.

The final three assets are expected to be sold ahead of the April 2015 interest payment date.

jwallace@costar.co.uk

About CoStar News

Finance Editor, CoStar News
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