Commerzbank’s two commercial real estate loan portfolios with a combined outstanding principal balance of just under €3.5bn have progressed to the second phase, as optimism increases that the market price offered and the floor pricing required to convert the prospective sales into trades can be bridged.
Commerzbank has attributed different names for the two loan portfolios to each investor in an effort to flush out leaks surrounding the process.
Cerberus Capital Management, Colony Capital, Lone Star and Oaktree Capital Management are through on the pan-European loan portfolio, while Cerberus and Lone Star are among those which have progressed to the second phase on the German NPL.
The bulk of the pan-European loan portfolio is performing, with less than one-third by outstanding loan balance a mixture of sub-performing and non-performing. As a result of this loan composition, provisioning against the pan-European portfolio is low and therefore Commerzbank cannot afford to take much of a discount.
The €752m German NPL is a different case. Almost all of the loans are in default and passed maturity, including many for some time with certain secured assets already working the way through insolvency.
Commerzbank’s German NPL has 257 loan tranches, comprised of 114 borrower groups with total liabilities, unpaid interest, amortisation and other costs, of €752.15m.
The property portfolio is 177-strong, including: 42 offices (including 5 assets with a mixed-use component), 35 multi-family blocks, 14 mixed residential and commercial buildings, 10 hotels, eight warehouses, seven shopping centres, five factory buildings, five retail parks and three logistics buildings.
There is also a raft of more usual asset types, including three horse-riding farms, one furniture store, one cold storage house, one medical centre, one nursing home, one multi-storey car park and one petrol station with a supermarket.
While there are no current valuations for the underlying property portfolio, the annual passing rent is €51.2m. Based on passing rent, there is a considerable concentration of value within 10 assets which account for €26.2m, coincidentally also 51.2%, of the total portfolio income.
These largest assets and portfolios in the German NPL include:
- The 49,500 sq m German Federal Post Office (Posttechnische Zentralamt) in Darmstadt West, owned by DCM German Capital Management. The outstanding principal balance (OPB) is €57.1m, which is 50:50 split between Commerzbank and Deutsche Hypo. The loan defaulted at its maturity, in 30 April 2014, and carries a fixed interest rate of 2.3%. Deutsche Post AG is the sole tenant. Annual rent is €9.4m.
- Two shopping centres in Jena and Chemnitz owned by Charter Hall Retail, the Australian REIT. Commerzbank’s OPB for the two tranches is a combined €80.8m. The loan was originated in June and July of 2007 and refinanced five years later, maturing on 15 December 2014. The July 2012 refinancing was at a 90% LTV at the time implying the assets were then worth circa €90m. REWE Group is the anchor tenant. Annual rent across the two properties is €6.9m.
- The 10-strong Mustang portfolio, primarily comprised of second and third tier offices over 60,000 sq m, was acquired by Stonehage Westcity Property Fund and AXA REIM’s European Added Value Fund for €85m in April 2007. The portfolio acquisition was financed with a €51m senior loan, priced at a fixed rate of 5.37%, and a €5.3m junior loan, priced at 7.04%, both from Eurohypo. The loan matured in April 2014, since which it went into a bank-led insolvency. AXA’s fund has already written off circa €18.1m of its equity commitment.
- Thüringen Office Park in Erfurt which has a current asking price of circa €25m. There is €50.7m of outstanding debt secured against the 31,536 sq m office park, including a €25.3m subordinate loan held by Commerzbank, which matured on 11 March 2014. Annual passing rent is €2.3m.
- A 35,261 m sq retail and logistic building in Jüchen. The outstanding balance is €25.7m for the loan which matured at the end of 2011. The borrower SPV is in receivership. The non-performing loan carries a margin of 4.0% with default interest accruing. Annual passing rent is €2.27m.
- A 34,930 sq m business park in Augsburg developed in the first half of the last decade by German property developers, Marc Lehmann and Henryk Berler. Commerzbank has an outstanding principal balance of €10.8m out of an original staggered commitment of €12.5m. The facility matured on 30 Sepetmber 2014 and carries a monthly fixed interest rate of 3.0%. Annual passing rent is €1.1m.
- Two separate buildings at Domkloster 2 and 4 in Köln comprising a hotel with retail space on the ground floor and a separate retail block both owned by Bayerische Versorgungskammer immobilien, Germany’s largest pension fund for doctors. Commerzbank retains a €17.1m facility, down from an original staggered commitment of €39m. The four tranches are all past maturity. Annual passing rent is €1.1m.
Commerzbank, which declined to comment, is selling the two loan portfolios directly. According to its annual results for 2014 published two weeks ago, the German investment bank has just €20bn in legacy Eurohypo commercial real estate loans remaining.
This is comprised of €3.3bn in NPLs and €16.7bn in performing and sub-performing. German loans include €10.1bn in performing and €1.8bn in non-performing loans.