Värde Partners wins bulk of Glenn Maud’s former Gemini portfolio for above £305m

Värde Partners has won the remaining 24-strong Gemini UK commercial property portfolio, formerly owned by Glenn Maud’s Propinvest, for above £305m, CoStar News has learned.

Varde logoThe sale price reflects a sub 9% net initial yield and reflects around a 10% premium to GVA’s £278.6m valuation in March 2015. The asking price was for offers in excess of £300m.

APAM is Värde’s asset manager partner in the deal.

Colony Capital and Quidnet Capital Partners were the closest underbidders, thought to have submitted a bid fractionally below Värde’s winning level.

Fortress Investment Group with M&M Asset Management and Ardstone Capital both bid around £300m, CoStar News understands. Ardstone is believed to have partnered with Sherman Financial Group on the bid.

The four-strong finalists were selected at the end of July after CBRE, which was mandated by CBRE Loan Servicing and Deloitte to sell the remaining direct property portfolio security of the Gemini CMBS loan, secured 10 indicative bids, with the lowest bid around £270m.

The four finalists were thought to have all bid close to the full £300m asking price. CMBS restructuring proposals were strictly not considered.

This win reflects Värde’s third acquisition from legacy single borrower CMBS transactions in Europe, after providing the majority of capital to acquire the £62.5m Ruby portfolio was sourced from Noel Smyth’s Alburn REC 6 in a joint venture with Kennedy Wilson in protracted battle finally concluded in December 2012.

Värde was also triumphant in an equally fiercely-contested CBMS battle for Johnny Ronan and Richard Barrett’s 16-strong Castle Market Dublin office portfolio for €306m in July 2013.

The remaining 3.27m sq ft Gemini is the security of the Gemini (Eclipse 2006-3) PLC loan, which has an unpaid balance of £850.4m. Value in the securitisation breaks in the class As, which had an unpaid balance of £569.2m.

The Gemini portfolio includes several challenging assets, due to expiring leases and rising vacancy rates.

Difficult assets include: the 135, 712 sq ft Callendar Square Shopping Centre in Falkirk, which has a vacancy rate of 27%; the adjoining The Galleries, and Marketgate and Makinson Arcade shopping centres in Wigan, across 438, 540 sq ft, which has a vacancy rate of 22%; and the 130, 874 sq ft Renfrew Retail Park near Glasgow, which has a 37% vacancy rate.

Certain other assets in Gemini have expected further lease run-offs. The remaining portfolio has an annual rent roll of £29.25m, however, there is currently a rental shortfall of £3.37m. The average weighted unexpired lease term to break and expiry is 6.06 and 6.98 years, respectively. The portfolio level vacancy rate is 6.87%.

To put into context the portfolio’s fall in value since its 2006 pre-UK commercial property crash valuations, the 24 assets parcelled up for a portfolio sale were valued nine years ago at £823.67m.

The expected net recovery to bondholders is still difficult to estimate, given the ongoing litigation case by the issuer of the CMBS against the pre-securitisation valuers, CBRE and Warwick Street.

According to the August quarterly investor note, published on Friday, the interest rate swap mark-to-market (MTM) increased by £8.3m to £90.0m, in the month to 17 August, as calculated by CBRE.

There was also a £6.66m drawdown on the liquidity facility, taking the total drawn facility to £56.5m, although CBRELS previously negotiated a deal with the liquidity facility provider, capping its return at just under £50m, insulating noteholders’ liabilities to some extent.

The broad estimate of net recoveries is expected to be plus or minus the 30% level, approximately in line with long-standing expectations.

The net proceeds after costs and liabilities will be distributed to class A noteholders which are believed to include the non-core unit at Deutsche Bank and HSBC, CoStar News understands.

All three major rating agencies, Standard & Poor’s, Moody’s and Fitch Ratings, awarded the class A notes – as well as the Bs – AAA ratings for investment grade level risk in November 2006.

All parties declined to comment


About CoStar News

Finance Editor, CoStar News
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