DISTRESSED DEBT INVESTING
The German manager avoids scramble for big-ticket deals to hunt out lower-profile distressed loans, reports Jane Roberts
Bargain-hunters for smaller non-performing property loans, those below the headline-grabbing €100m or so size, tend to fly below the radar.
One such operator is Frankfurt-based Albulus Advisors, a two-year-old independent manager set up by Ruprecht Hellauer. Albulus has a partnership with wealthy private property company UK & European Investments and they are looking to invest €100m in German non-performing loans.
“Ruprecht is a developer at heart,” says Adam Golebiowski, UK & European’s acquisitions director. “He combines two extremely important aspects for this strategy: he understands the entire legal process of German non-performing loans and he understands the real estate behind it.”
He is referring to Hellauer’s first key job, when he worked for US developer Gerald Hines in Germany. More recently, between 2004 and 2011, Hellauer ran Lohnbach Property Advisors, which was founded with George Soros’s Soros Real Estate Partners, and focused on investing in the last round of non-performing loans to be sold by German banks.
Securing good-quality real estate
The strategy is all about sourcing off-market deals and securing good-quality underlying real estate at a discount, mainly in the top seven cities where the property market is most liquid. Sounds simple, but, Hellauer says, the reason non-performing loans are sold at a discount is “because something went wrong and in 80-90% of the cases the underlying real estate is bad. We focus on what we want to own long-term.”
The partnership targets loans in the €10m-€50m range, “typically more complex structures where average developers can’t cope, but that are too complicated for their size for large investors,” adds Hellauer. “Once you are over €100m ticket sizes, competition [ from large private equity funds] increases dramatically, so it makes a lot of sense to stay away from them.”
Golebiowski adds: “In a larger transaction you will never have exclusivity. The due diligence costs are not being reimbursed and you can spend a lot of money without anything to show for it.”
Sourcing deals is, as they admit, a lot of work. Last year they combed through some 28 loans with a £1.4bn face value and bought just one asset: a loan secured on the InterContinental Hotel in Hamburg. In May, they were able to sell the asset to KÃ¼hne Immobilia, a company related to distribution giant KÃ¼hne & Nagel.
Now they have exclusivity agreements on three separate deals that they hope to close after the summer. “We look for returns of between 12-18%,” Golebiowski says.
UK & European is “extremely happy to back Ruprecht with capital, although we are not a Calpers or a GIC,” he adds. Albulus had been looking at raising a fund, advised by Jones Lang LaSalle, just before the partnership was established. It is still easier, it seems, to find capital than good investment opportunities.
But, Hellauer says: “It is getting a bit easier because of the maturity defaults we are seeing building up in Germany at the moment. A lot of loans are running out and banks are searching for solutions.”