Kildare gains ground as GE turns off lights in Germany

UK private equity firm expands in Germany via GE loans-and-assets deal, writes Lauren Parr

Billionaire Ellis Short’s UK private equity firm Kildare Partners is increasing its German real estate footprint, after buying a €700m portfolio of 80 performing, sub-performing and non-performing loans, and 60 core-plus properties, from GE Capital Real Estate.

It has also taken on between five and 10 staff who will join a new German asset management business it is setting up through its Curzon Advisers subsidiary.

The loans were mainly part of the Credit Suisse and Capmark loan books GE bought back in 2008 and are largely secured against value-added retail and office buildings. The properties are ‘B’ grade assets in ‘A’ cities and ‘A’ grade assets in ‘B’ or ‘C’ locations.

James MacNamara led the deal – one of four members of Kildare’s senior investment team with a remit to source mainly distressed Western European debt and equity investments for its $2bn Kildare European Partners I fund.

Kildare beat a broad range of investors, including German players, to enter exclusivity in mid-May, with a sales and purchase agreement signed in July – a fast turnaround given the deal’s legal complexity.

The 60 properties were held by respective property companies yet the dual property and loan portfolio was sold through a combined contract. Clifford Chance advised GE Capital; Kildare was advised by Ashurst.

The deal is Kildare’s second known German investment, its first being the €828m Mars Fixed I Loan bought from Deutsche Bank in March 2014, using €580m of financing from Goldman Sachs.

The portfolio comprised 26 offices and two Le Méridien hotels in Munich and Frankfurt. Both hotels have been traded this year, to German buyers Art Invest Real Estate and Deka Immobilien respectively.

Curzon Advisers manages all of Kildare’s European investments and handles the loan servicing, special servicing and due diligence.

REC 10.15 ISSUE LOW RES_Page_15_Image_0001Residual german exposure

The sale leaves GE Capital, which announced its retreat from all real estate and most lending in April, with residual German exposure totalling around €215m. This includes a performing loan about to be repaid by the borrower, which is selling the underlying asset “for a very good price”, a source that worked on the Kildare deal says.

GE Capital also retained a non-performing loan for the same reason. Together they amount to €150m. The company only wrote its first new German loan this cycle last October: €16m for Westcore Europe’s acquisition of a 36,000m2 Berlin office complex, followed by a facility for future expenditure and leasing-related costs.

At the time, Frank Roseen, MD of GE Capital Real Estate Germany & CEE (who now manages acquisitions and finance for German investor WCM), said the group aimed to lend around €1bn in Germany in  the ensuing 18 months. Its main focus was on senior loans of €15m-100m for single assets and €50m-400m for portfolios, at leverage up to 75%.

In 2013 GE’s finance arm inherited a few performing German commercial real estate loans as part of the £1.4bn Project Tower debt purchase from Deutsche Postbank. It held 200 German properties worth €1.8bn at the end of 2014, some of which have now been sold, including two Berlin offices, to Patron Capital and WCM.

GE Capital also has a 50/50 German joint venture that owns seven light industrial assets valued at around €65m, which it is marketing separately.

GE has sold most of its real estate debt and equity holdings since announcing its  shift in focus to its core industrial business. Blackstone and Wells Fargo took $22.5bn of loans and assets, the latter buying most of the around $2bn of performing European loans – largely UK, with a few French ones that are mainly long-dated, from the Bradford & Bingley book GE bought in 2007.