Blackstone leads five-horse race to snap up WestImmo

Five parties are vying to buy German real estate bank Westdeutsche ImmobilienBank (WestImmo). Parent company Westdeutsche Landesbank (WestLB) is thought to have whittled down the shortlist for the second round of bidding to: The Blackstone Group – the likely frontrunner – Aareal Bank, Lone Star, Apollo Management and Colony Capital. WestLB received 10 non-binding offers for the real estate finance business in the early stages of the auction, all believed to be below book value. The deadline for tabling binding offers is said to be mid April. WestLB valued WestImmo at €850m (£763.9m) at the end of 2008, but market speculation puts the asking price lower, at somewhere in the €500m-€700m range WestImmo – which has a €27bn balance sheet, is profitable, and operates in Europe, the US and Asia – is the first sizeable real estate bank to be offered for sale in the wake of the financial crisis.

Stricken WestLB hopes to offload €85bn of assets into what would be Germany’s first so-called ‘bad bank’ and is selling its subsidiary to meet European Union demands for a radical restructuring, in exchange for state aid that rescued the landesbank in 2008. To the same end, it recently agreed to sell its Polish subsidiary, WestLB Bank Polska, to Abris Capital Partners and IDMSA for an undisclosed sum. €85bn of assets into what would be Germany’s first so-called ‘bad bank’ and is selling its subsidiary to meet European Union demands for a radical restructuring, in exchange for state aid that rescued the landesbank in 2008. To the same end, it recently agreed to sell its Polish subsidiary, WestLB Bank Polska, to Abris Capital Partners and IDMSA for an undisclosed sum.

The price WestImmo fetches could determine whether other banks will be forced to revalue their real estate assets. The EU has ordered Commerzbank to sell Eurohypo, Europe’s largest pure property bank, by 2014, while Deutsche Pfandbriefbank, which was nationalised following several bailouts, is also shedding assets. “WestImmo has been originating good new loans [see box], but its legacy portfolio is probably not marked at a price you could clear,” says one of the five shortlisted bidders. WestLB began the disposal process for WestImmo in October, when it appointed Citigroup and JPMorgan Chase to arrange the sale. The bidding officially opened at the start of this year and bidders were invited to submit expressions of interest by 22 January, and indicative offers by 26 February.

WestLB will pick a buyer partly on its financial strength, in particular its rating, to safeguard WestImmo’s solvency in the long run. Access to financing and the ability to conclude the deal by the deadline will be other important factors. The group would prefer to sell the bank in its entirety, but will consider alternative acquisition structures, such as a majority shareholding that allows WestLB to exit from a minority stake later.

One rival bidder

Aareal Bank is the only direct rival bank in the running, which has surprised some observers, but may please WestImmo’s staff. Aareal is a specialist property lender, but only resumed new UK business this year. The bank declined to comment on WestImmo. The same bidder says: “We’re looking at WestImmo, as it’s a management team we know. A real estate lender is a good thing to be now. With access to pfandbrief to fund new business, and the combination of [WestImmo’s] global footprint and our real estate expertise, [the result] could be the emergence of one of the most dominant lenders, as everyone else is down.”

But funding the bank beyond the cost of the acquisition could be problematic for a private equity investor, unless it is granted access to German government capital, because future regulatory capital requirements for European banks are uncertain. “The big issue about the WestImmo sale is the prospect of a busted auction,” says the bidder. “There is a high chance WestLB will fail, because this is not about buying a loan book, it is a private equity deal to buy a bank. “We are in talks and it is not clear how keen they are. We would have a go on our own, but it wouldn’t be a conforming all-cash bid. We would need access to Landesbank capital and that would need to be tied up.”

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