Hansteen has made opportunistic acquisitions of two loans from UniCredit bank for a total €97m. The move enables the UK REIT, a specialist in European industrial property, to acquire a large Dutch industrial portfolio and refinance 34 German assets that it already owns.
Both loans were originally made to now defunct fund manager GPT Halverton. The UK REIT paid about €55m late last year for 25% of a performing German loan of around €230m, secured on the German assets, reflecting a small 5% discount to face value. UniCredit retains the majority of the remaining 75% of debt. Austrian regional bank HYPO NOE and JPMorgan Cazenove own 5%. That loan matures in April 2015.
“We were convinced we’d refinance at some stage so it was a no-brainer to buy it at a bit of a discount,” said Ian Watson, joint chief executive of Hansteen. Hansteen bought the German assets in 2010, “when the German loan got into trouble”, with UniCredit’s help, by stapling what was then €300m of debt. Hansteen paid down part of the original loan and acquired the property for a nominal sum.
On the second, Dutch portfolio, UniCredit was joint lender with ING. “We’ve been talking to them since about the Netherlands loan but we couldn’t agree terms,” added Watson. “They’d been talking to a potential buyer of the assets, but that hit the rocks. It was clear they would like to get out of that loan and we bought it from them at the end of the year.”
Hansteen acquired UniCredit’s €85m distressed position at a 51% discount, using existing cash resources. The loan expires in February 2015 and it has breached its loan-to-value covenant, although income is still servicing the loan thanks to cash trapping. ING holds the other €85m of debt. The gross annual rental income of the portfolio is more than €15m and the current vacancy rate is around 20%.
“The banks are totally in control; it’s heavily in default and way underwater,” Watson said. The last valuation, in February 2012, of the 40 Dutch estates largely in the Randstad area was €113m, compared with their €170m total debt. Both the loans were originated for asset manager Halverton before 2007 and were initially destined for securitisation. UniCredit bought the German loan from Barclays Capital in December 2007, jointly with JPMorgan.
The latter was also “in the Dutch loan, but is now completely gone”, said Watson. ING took over its position. Hansteen will work with ING and borrower Lancelot Land – the entity holding the European assets formerly related to Australian REIT GPT – to form a plan to maximise recoveries. It is “likely to involve us lenders taking control of the assets at some stage” he said. “We wanted to buy the underlying [good quality, multi-let] assets. Buying the loan was a means to an end for us.”
There has been a recent increase in investment demand for these types of Dutch assets, as investors look beyond just core or prime property to high-yielding secondary assets. Because of this, Watson believes “the purchase price reflects a significant discount to the value of the loan [as well as] the value of the underlying property assets”.