HPI circumvents Bridge loan replacement threat raising prospect of €340m German office portfolio sale

Hatfield Philips International (HPI) looks to have circumvented the long-running threat to its mandate as special servicer for the Windermere X Bridge Whole Loan after striking a recovery-related deal with B-Loan owner, Davidson Kempner, CoStar News understands.  

Davidson Kempner acquired the second tranche of the nominal out-of-the money €30m B-Loan under the Bridge Senior Loan last summer for a price thought to be in the low millions from Helaba.  Around two years ago, the first tranche of the B-Loan was also acquired by Davidson Kempner from a separate bank.

The B-Loan includes the right to block the change of special servicer which Cheyne Capital, the controlling class representative (CCR) on Windermere X, attempted to push at the end of last year.

In a notice to the Stock Exchange last Thursday, HPI confirmed it would reduce its special servicing fee from 23 basis points to 10bps.  

In addition, HPI has agreed to forfeit its 40bps special servicing workout fee and liquidation fee unless the B-Loan recovery exceeds “certain levels”.  The hurdle level is expected to be relatively modest, likely requiring a recovery just a few million above the outstanding senior loan balance, which is €328.4m.

Arguably, the relatively modest hurdle level at which HPI recoups its liquidation fee restricts an overt alignment between the special servicer and the B-Loan owner, Davidson Kempner.   In addition, the 13 bps special servicing fee reduction also will improve senior recoveries.  

The revised fee structure is likely to incentivise Davidson Kempner to block Cheyne’s attempts to replace HPI, allowing the special servicer to press ahead with its preferred strategy of selling the assets as a direct property portfolio.

HPI confirmed this preference in a noteholder call and accompanying presentation on 22 January, responding to the challenge to its mandate as special servicer, stating: “HPI, borrowers and Valad are also exploring the option for a portfolio sale as this may be more favourable in the current market environment.”

In the presentation, HPI continued: “Should a portfolio sale not be pursued, HPI, Borrowers and Valad have conducted a pitch process and have selected a preferred agent for two of the properties, Frankfurt and Sulzbach.”

Valad Europe was appointed to asset manage the six-strong Bridge portfolio, formerly owned by the Fortress Investment Group-controlled Eurocastle Investment, in April last year.

HPI replaced the Eurocastle-controlled asset manager on the Bridge portfolio in January 2014, after consensual loan restructuring and extension talks broke down.

The last valuation of the underlying Bridge property portfolio – comprised of six offices throughout German – was in September 2013, at €325m. 

However, given the current weight of capital chasing value-add investment opportunities in Europe, HPI may have ambitions to better the 18-month old valuation.

Since December, a number of big ticket direct property deals have concluded underscoring this weight of capital, such as US REIT NorthStar Realty Finance’s acquisition of both the €1.1bn SEB Europe Prime office portfolio and the near close of Provinzial NordWest’s European mixed-use portfolio for near €500m, dubbed Project Trias.

Furthermore, HPI has recently had success itself with the sale of the Sunrise retail portfolio to CR Investment Management for around €360m, as revealed by CoStar News.  

The Bridge office portfolio is comprised of:

  • the 44,278 sq m Gallusparkoffice in Frankfurt;
  • the 17,279 sq m Am Unisys-Park 1 office in Sulzbach;
  • the 48,073 sq m Alt Moabit 91 office in Berlin;
  • the 11,953 sq m Kaiserswerther Str. 117– 119 office in Düsseldorf.
  • the 40,223 sq m Alfred-Herrenhausen-Allee 1 office in Eschborn;
  • the 29,740 sq m Abraham-Lincoln-Park 1 office in Wiesbaden

If HPI were able to sell the Bridge portfolio for €340m, for example, this would reflect a net initial yield of circa 8%, based on a net rental income of €27.76m and assuming a small deduction for non-recoverables.

By contrast, a more conservative view would be to point to the capex needed by some of the portfolio’s assets which would require a single asset slae to fund a capex progamme.

Indeed, the portfolio is now been without its challenges, however.  Bilfinger, the engineering and services group, was close to leasing the Alfred-Herrenhausen-Allee 1 office in Eschborn for its new headquarters, but opted for a cheaper alternative.

HPI said in its presentation: “The special servicer and the asset manager’s team spent approx. 500 hours pursuing this deal, the majority of knowledge gained during the process can be redeployed for further lettings.”

Vodafone has three years remaining on its lease, but has largely vacated the building already. Finding a replacement tenant prior to selling the Bridge portfolio would materially improve the achievable sale price and, in turn, recoveries for the B-Loan owner, Davidson Kempner.

All parties declined to comment.


About CoStar News

Finance Editor, CoStar News
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