Work-out expert CR answers latest European distress calls


Having built up its business by managing distressed properties in Germany, CR Investment Management has entered other European markets, with Spain its next target, writes Lauren Parr

CR's (l-r) Chris Ogle, Jacob Lyons and Richard Fine are eyeing new territories such as Spain
CR’s (l-r) Chris Ogle, Jacob Lyons and Richard Fine are eyeing new territories such as Spain [photo: Marcus Rose]
Asset management businesses are notoriously difficult to run profitably, but eight years after it was founded in 2004, CR Investment Management has a strong foothold in German asset management and is expanding in other territories, such as the UK, Ireland and soon Spain.

What started as an asset management business in Germany, with about 22 staff in Frankfurt and five in London, has grown to 110 staff in five German offices, plus one office each in Paris, Amsterdam, Dublin and London. CR now has €5bn of assets under management, €3.5bn of that figure in Germany.

“We’re going into Spain in a big way,” says London-based co-founder and MD Jacob Lyons, as the firm prepares to open an office in Madrid. “Like Ireland, Spain is under enormous pressure to be transparent to the outside world and needs to take huge steps towards restructuring and being amenable to working with third parties. We’re talking to both domestic banks and non-Spanish banks that have exposure there,” (see table).

With finance as well as property skills among CR’s six managing directors, and so many loan work-outs going on in Europe,the firm is understandably targeting banks. In Dublin, where Irish head Chris Ogle has been based since last year, it aims to add a further two bank clients to the two domestic banks and one foreign bank it advises on their Irish property exposure.

Ogle, who previously monitored Royal Bank of Scotland’s German and Irish non- core books at the Asset Protection Agency, says: “We started pitching for management work on banks’ portfolios last July. Now we’re managing about €500m of property by principal balance, as an asset manager in some cases, doing surveillance jobs and overlooking what borrowers are doing.”

A ‘major hand’ in clients’ business plans

CR’s Irish remit is to sell assets, but it is not going after mandates from the National Asset Management Agency. “Where we’re working on the buy side, our fees are almost exclusively success-based, but we insist on having a major hand in defining and executing the business plan for our client,” adds Lyons, who works with MD Stephen Benson and director Richard Fine in the UK.

Many asset managers and debt advisers are ramping up their operations in Germany, where a lot of high-profile loan work-outs are needed following an investment boom by foreigners in the past 10 years. But CR was ahead of the curve in entering Germany in 2004, having deemed the UK “pretty mature for everything” at that point.

CR saw “a big investment trend of money going into Germany [yet] the market was fragmented and the ability to deliver scale and expertise to the management of assets and loans was extremely limited,” Lyons says.

A main aim when the business was founded was to “put together infrastructure in Germany that allowed for capital to come into the market: sourcing deals, debt and equity”. Deutsche Bank approached CR to help it put out debt at a time when DB aimed to expand its lending business from London.

Four years later, CR was managing €700m of assets and loans, and lending had dried up. “All this money had gone out the door. There had been tons of lending in Germany, and there was no way to get this money back. Borrowers had disappeared; some didn’t even put capital in, so they walked away.”

Lyons says CR has used its position in talking to banks “to convince clients that we could understand financial restructuring as well as operating the property.” This is a big part of CR’s pitch to clients.

The team’s background includes Lyons’ time at Rothschild; German MDs Torsten Hollstein’s spell with Lehman Brothers and Claudius Meyer’s at Ernst & Young real estate; while Benson worked at CBRE.

It has also diversified into credit restructuring expertise since its early days. Lyons says: “We talk the same language as the banks; we understand what they need to achieve at balance-sheet level.”

Tact as well as financial calculations can be needed in restructuring. For example, dealing with Deutsche Bank’s Karstadt department store portfolio is politically sensitive, as the sight of empty shops in towns across Germany, including the bank’s Frankfurt base, has worried local governments.

Negotiating on German assets

Germany’s biggest bank financed the former Treveria portfolio, once owned by Dawnay Day and now in insolvency. CR is negotiat- ing with mayors, on behalf of bondholders in Deutsche Bank’s securitised loan, to get consent to make the assets more saleable.

CR is still accumulating assets under management in Germany, but doesn’t want to be labelled purely as a German asset manager. It played a long waiting game to get to the point in the past two years, “where we have expanded dramatically outside Germany,” says Lyons.

March 2013, page 21, image 1Initially, CR found it hard working with UK banks, which would plump for established managers they had worked with in the past, such as RBS with Delancey. “It was easier to pick up business outside their own country, where banks are more pragmatic – as pro-active assistance in restructuring these units is often very welcome.”

But cost pressures are leading banks to look to third parties that can manage assets better and have more people and expertise, rather than relying on in-house work-out teams. This is a political mine-field, because banks’ work-out staff have an incentive to let bad loans roll on, lest they be out of a job.

CR waited, knowing banks that got into trouble in one jurisdiction often got into trouble everywhere, hoping that if it did a good job with banks’ foreign assets, “we could say ‘you know and like us'”.

As a result, CR now works for UK and Irish banks in their home markets, as well as on cross-border mandates. The latter include a mandate to restructure, manage and sell 2,500 German homes for a Dutch bank and another to sell a UK bank’s Dutch assets.

It is also advising on the restructuring of a UK loan book for a German bank that is exiting the market, as well as another bank’s position in a syndicate for a UK deal.

In the latter case, CR advised on the bank’s rights, the value of a distressed regional mall, and talks with the syndicate’s diverse range of lenders, as well as with the borrower – an international private equity firm that is now fund raising. The bank is evaluating whether to do a deal with the other lenders or sell its part of the debt. Part of the debt is held in NAMA; a hedge fund owns the other part.

Successful portfolio sales formula

CR has a simple, successful formula for selling portfolios: “sell the good or awful bits and aim to create value in the middle”.

One of its biggest success stories looks like being its management of assets backing the €472m Mozart loan in the Talisman 7 CMBS, made to Morgan Stanley Real Estate Funds. CR’s taking over as asset manager in mid-2011 was the most significant factor in turning around that loan, according to a note by Deutsche Bank analysts last summer.

Lyons says: “In the largest property, we secured a lease surrender from the tenant and put Primark on Frankfurt’s best street. The value uplift from that was about €40m.”

CR has sold more than 20 of around 100 properties at above their valuations and has been praised for selling assets that could not benefit from asset management first. It has improved the weighted average lease, gross rent and occupancy statistics and Deutsche Bank’s analysts believe a full recovery on the securitised senior loan is, for the first time, a distinct possibility.

CR plays ‘go-between’ in Treveria’s German retail work-out

CR has been appointed to manage 48 German retail properties securing part of Treveria’s securitised debt (the €230m D silo), and is looking at how to extract the most value – probably by a piecemeal sale of the portfolio.

It is acting as a go-between for the lender and borrower and running down the position for Treveria (the borrower gets 1.8% of the price of each asset sold), in exchange for which special servicer Situs is “giving [Treveria] a lot of leeway”.

Having the borrower on board makes CR’s job easier, says Lyons: “We have all the information from the borrower, which is trying to be helpful; it wants to sell the properties.”

CR also manages Treveria’s insolvent €550m C silo, also financed by loans from Citigroup and Deutsche Bank. Situs is the special servicer here too, and helped CR get its latest appointment.

Another German mandate it is working on is the Deikon portfolio of 86 supermarkets. It was appointed by the administrator to sell the assets, which have drawn interest from hedge funds looking to take a share in the capital stack, as well as from German retailers seeking a ‘land grab’ from their competitors.