Starwood’s mortgage REIT acquires Lone Star’s Dublin office pool in €350m debut Irish equity investment

Starwood Property Trust (STWD), the $6.8bn US mortgage REIT, has acquired a portfolio of stabilised offices in Dublin from Lone Star for €350m, in the firm’s first equity investment in Ireland and also the first by a major US REIT in Dublin.

Starwood Property TrustThe office portfolio sale reflects a net initial yield of circa 5.6%, CoStar News understands, and is indicative of the emerging flight of capital by US REITs into Europe, following NorthStar Realty Finance Corp’s €1.1bn acquisition of 11-strong SEB portfolio in January.

STWD principally originates senior loans and mezzanine loans in the US and Europe, although the mortgage REIT’s mandate extends to selective equity investments.  

US REITs are investing Europe on the same relative value basis which has underpinned the exceptional capital flows into the sector driven by the enduring low interest rate environment which entrenches a yield gap for real estate over bonds.

Lone Star’s original strategy was a €400m refinancing of the Dublin portfolio, including Project Holly assets as well as single properties acquired from RBS, NAMA and Ulster Bank, including 75 St Stephen’s Green.

However, Lone Star’s sale to Starwood’s mortgage REIT did not include 75 St Stephen’s Green, acquired through an RBS loan in December 2013 for €79m, which is now expected to be separately sold. 

Also excluded from the original Project Holly portfolio was CityNorth, a 100-acre mixed-use commercial development, comprised of office blocks and CityNorth Hotel, the four-star 128-bed hotel in Gormanston.

Eastdil Secured was appointed around six weeks ago to refinance the portfolio, the majority of which was acquired as the Project Holly loan portfolio from NAMA for €220m in January 2014. 

The refinancing trajectory led to a number of highly competitive term sheets from a raft of international lenders, including investment banks, insurance companies and German pfandbrief banks, which piqued equity interest.

Five year term sheets at 60% LTV for the stabilised Dublin off portfolio at a margin of 200 basis points were received, which equates to €210m, indicative of the ever sharpening of yields and financing costs for Dublin offices.

STWD is understood to have beaten off competition for the portfolio acquisition from Chinese insurance company Ping An, which acquired Lloyds building in London for £260m in July 2013, and Union Investments, which acquired Facebook’s headquarters at Grand Canal Square in the south Dublin docklands for €232m.

The assets acquired by Starwood Property Trust include:

  • the 210,000 sq ft Iveagh Court Complex, the five-block business and residential complex at the junction of Harcourt Road and Charlemont Street with current tenants including Mercer, Central Bank of Ireland, Hewitt, Office of Public Works, Skandia Global Funds as well as the Ireland embassy offices of Denmark and Estonia;
  • the Watermarque Building, Bridge Street & South Lotts Road, Dublin 4;
  • Marsh House, 25/28 Adelaide Road, Dublin 2, which is the Irish headquarters for March, the global insurance broking and risk management firm.
  • 11-12 Hogan Place, Dublin 2, a four-storey office block close to Merrion Square and south Docklands.

Starwood’s mortgage REIT has retained Eastdil Secured to select the most preferential financing package possible. Currently the best of the tabled offers previously secured by Eastil, on behalf of Lone Star, are believed to not include any domestic Irish lenders, which were not as price competitive as international lenders.

For Lone Star, the sale is a relatively rapid exit of the majority of its Dublin office interests, which were financed by a Royal Bank of Canada loan-on-loan financing, which means the private equity firm will have likely made a high multiple on only ever the thin equity stake in the deal.

All parties declined to comment.

About CoStar News

Finance Editor, CoStar News
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