A decade since Lehman: 10 casualties of the crisis

Property markets the world over were hit, but some transactions weighed on events – or were shaped by them – more than most. Real Estate Capital and our sister title PERE pick 10 that had the biggest impact.

1. Hilton Hotels

When Blackstone took Hilton Hotels private in a $26 billion deal in 2007, “everyone thought it was a bust”, Hilton CEO Christopher Nassetta said in an interview this year. The deal closed shortly before the Global Financial Crisis, and Hilton’s revenue subesequently dropped by 20 percent. Blackstone wrote down the investment, which had been 80 percent leveraged, invested additional capital in Hilton, increased the number of rooms and restructured the hotel company’s debt. In 2013, the firm took Hilton public again. Blackstone completed its exit this year and realised a total of $14 billion, its most profitable private equity real estate deal to date.

2. Equity Office Properties

Following a fierce bidding war in 2007, Blackstone set the record for the biggest real estate investment trust take-private when it bought Equity Office Properties in the US for $39 billion from real estate magnate Sam Zell. It then immediately began selling off some of the 543 assets. Several buyers suffered devastating losses from those EOP deals, which were highly levered and lost significant value during the recession after being purchased at the height of the market. Blackstone, on the other hand, is understood to have tripled its initial investment as it sold off additional EOP assets in the ensuing years.

3. Stuyvesant Town – Peter Cooper Village

In just three years, Tishman Speyer would go from purchasing the $5.4 billion multifamily New York complex Stuyvesant Town and Peter Cooper Village in 2006 to defaulting on the mortgage with investment partner BlackRock in January 2010. It was the biggest real estate deal in American history at the time, and the default brought giant losses to the investors that reportedly backed the deal, including GIC Private and the Church of England. During Tishman Speyer and BlackRock’s three-year ownership of the asset, it lost approximately 65 percent of its value and subsequently was handed over to creditors. In 2015, the complex was bought in a $5.3 billion deal by a joint venture between Blackstone and Ivanhoé Cambridge.

4. General Growth Properties

In 2010, Brookfield Asset Management, along with its partners in its Real Estate Turnaround Consortium, made an initial capital infusion of $2.6 billion to recapitalise bankrupt US mall owner General Growth Properties. The investment helped to bring GGP out of Chapter 11 bankruptcy protection and contributed to the stellar performance of the club vehicle, helping to pave the way for Brookfield to raise its first global real estate fund, Brookfield Strategic Real Estate Partners I. In March, Brookfield Property Partners, Brookfield’s publicly listed real estate arm, agreed to acquire the remaining shares of GGP it did not already own.

5. Coeur Défense

Source: Olivier Passalacqua/Wikimedia

In March 2007, Lehman Brothers Real Estate Partners and asset manager Atemi – 40 percent owned by Lehman – bought the Coeur Défense office complex in Paris for €2.1 billion. Lehman also arranged and underwrote a €1.63 billion senior loan to finance it, syndicated half to Goldman Sachs, provided bridge equity, securitised the loan with Goldman in Windermere XII and advised on the hedging. It would prove a costly exposure. In 2014, Lone Star gained ownership of the complex, which had been stuck in the defaulted commercial mortgage-backed securities deal, for €1.3 billion, an approximately 40 percent discount.

6. Ciudad Financiera

Soon after the Lehman collapse, Glenn Maud’s Propinvest and Irish investor Derek Quinlan’s Quinlan Private bought the 4.3 million-square-foot Madrid headquarters of Santander for €1.9 billion, reportedly using 98 percent leverage. Lower-than-expected income and high leverage proved the investment’s undoing. In 2010, Robert Tchenguiz, backed by sovereign wealth fund Mubadala, bought junior debt and Quinlan’s equity and has been battling Maud for control through the Spanish courts since 2011. Loan interest has increased the amount payable to €2.7 billion but the campus is still understood to be on the brink of a record-setting sale.

7. Citi Tower

In May 2013, as Ireland’s National Asset Management Agency attempted to recoup taxpayer money used to bail out the country’s failed banking system, the 1.2 million-square-foot Citi Tower in London’s Canary Wharf was sold. A joint venture between Glenn Maud’s Propinvest and Derek Quinlan’s Quinlan Private had originally bought it for £1 billion ($1.29 billion: €1.1 billion) in 2007, backed by a reported £875 million loan from a consortium led by AIB. NAMA received just £333 million when the tower was sold to Middle Eastern fund AGC Equity Partners for £1 billion, according to the Irish Times.

8. Pacific Century Place

Japanese real estate firm DaVinci Advisors was at its zenith when it acquired the office portion in the monolithic Pacific Century Place Marunouchi Building in Tokyo for approximately ¥200 billion (€1.5 billion) in 2006. It was Asia’s largest single-asset office transaction at the time. But when the global economic downturn reached Tokyo, DaVinci defaulted on its loan and senior lender Shinsei Bank seized the building. Ultimately, Secured Capital Japan (now PAG Real Estate) acquired the central Tokyo office reportedly for ¥140 billion in December 2009. DaVinci ended up being acquired by Fortress Investment Group, after the New York group assumed responsibility for $220 million of its debt in 2010.

9. Simplex Investment Advisors

In October 2007, Goldman Sachs Group and Aetos Capital teamed up to buy Simplex Investment Advisors, a Tokyo-based firm that owned 179 properties throughout Japan, for ¥500 billion (€3.8 billion), including debt. The purchase was made at a time of soaring property prices in Japan, but the ensuing collapse forced Goldman Sachs to sell its 50 percent stake in Simplex at a considerable discount to Aetos in 2011. According to media reports, the US bank received just ¥10 billion from Aetos. Goldman Sachs had begun selling assets in Japan after Whitehall Street International, the firm’s global real estate fund, had written down almost all its $1.8 billion of equity.

10. ANA Hotels

In June 2007, Morgan Stanley acquired a portfolio of 13 hotels in Japan, formerly owned by the Japanese airline ANA, for ¥280 billion (€2.1 billion) via its $8.8 billion Morgan Stanley Real Estate Fund VII. As the GFC emerged, the portfolio’s real value fell below that of the debt. In April 2010, the firm missed its loan payments on the portfolio, and got an extension until September. At the same time, it was telling investors the fund was set to lose $5.4 billion in equity due to bad investments, according to a Wall Street Journal report. Thus began the exit process. Four assets were sold in a debt-equity swap deal to the Singaporean sovereign wealth fund GIC, and four others to Japanese hotel-operator Hoshino Resort.