OPPORTUNITIES IN GERMANY
Private equity firm adds Monsoon and Phoenix portfolios to its German haul, reports Lauren Parr
Germany has been a fruitful hunting ground for Cerberus Capital Management. The US private equity firm, which manages $20bn of assets yet keeps a determinedly low profile, has been mopping up distressed assets there since the global financial crisis, reaping the reward of maintaining a Frankfurt office and close local relationships since 2002. The New York-rooted firm’s latest haul includes two distressed retail portfolios bought out of administration in all-cash deals.
The first, Phoenix, comprises six malls, an office and retail building, a retail warehouse and a mixed-use scheme in west Germany, valued at €200m in 2007; and security for a defaulted €150m Wachovia loan, which Wells Fargo had inherited on that bank’s takeover. Cerberus paid €70m for the secondary assets with close to 1m sq ft of floorspace.
The second, Monsoon, comprises 10 Kaufland retail stores, mainly in Dresden, Halle and Leipzig, which Cerberus bought out of administration for €224.4m after Royal Bank of Scotland took back the stores. Cerberus is expected to add leverage to the acquisition at between 60-65% loan-to-cost. Cerberus will “inject fresh capital and spearhead the turnaround of the properties”, said senior managing director Lee Millstein when the deals were completed in July.
Expanding German retail empire
Both portfolios will be managed by ACREST Property Group, one of the US firm’s trusted local partners and manager of the rest of Cerberus’s expanding German secondary retail empire. This includes the appositely- named, €300m ‘Rebound’ portfolio, 3m sq ft of 47 retail and mixed-use properties, which Cerberus prised out of Hypo Real Estate’s bad bank FMS Wertmanagement a year ago.
Cerberus stalked Phoenix and Monsoon for months, but as is the nature of financially complex quarries, the hunter doesn’t always prevail. One that got away was a 135-strong portfolio of secondary retail once owned by collapsed German retailer Treveria.
Hypothekenbank Frankfurt, which made the now defaulted €450m loan against the stores, pulled the sale in April. Cerberus is thought to have held out for around a 60% discount to the loan’s par value. Such is Cerberus’s reputation for sizing up distressed portfolios that rivals with similarly high costs of capital that pip it to the post are thought to have overpaid.
Loan auctions have been hugely competitive. Cerberus has been a frequent under-bidder, but in May struck gold with Project Thames, a UK non-performing loan portfolio acquired from Lloyds for £315m and financed with Nomura. It is now fishing for Lloyds’ Project Indie – a €450m senior loan secured against 47 German office and industrial properties managed by Valad. “Cerberus understands the distressed debt market. [It has] big pockets and can underwrite granular deals with potentially thousands of loans or properties.”
Millstein says Cerberus is an “experienced pair of hands” that knows how to get value from assets, thanks to its experience in buying non-performing loans during prior crises around the world, its financial power and solid group infrastructure.
“Cerberus understands the distressed debt market,” agrees one adviser. “[It has] big pockets and the capacity to underwrite granular deals with potentially thousands of loans or properties. [If Cerberus bids] it sets the benchmark price. With a granular portfolio, you know someone bidding 10-20% above Cerberus is overpaying.”
The group is building up its new Cerberus European Loan Servicing (CES) arm in anticipation of an increased flow of deals as deleveraging gathers pace. It has hired, among others, Ranald Coggle from Hudson Advisors as CES’s co-head. Thames is the team’s initial work-out task.
A role in IVG’s restructuring
In Germany, a Cerberus team led by Ron Rawald and David Knower is embroiled in IVG’s restructuring, in a consortium of creditors that rejected a debt-for-equity swap. A second major initiative is a prospective flotation of a bunch of better-quality retail assets acquired in sale-and- leaseback deals between 2007 and 2011.
Cerberus restructured the leases on the German Metro Cash & Carry and Woolworth portfolios; Metro, Germany’s biggest retailer, is a highly rated covenant and after six years of shrinking and rebuilding, Woolworth is on a sounder footing. Bloomberg reported that Goldman Sachs, JPMorgan and Bank of America Corp are advising.
In 2011, with Goldman Sachs’ Whitehall funds, Cerberus listed multi-family housing company GSW Immobilien, which the pair bought in 2004. The €900m acquisition of distressed Speymill Deutsche Immobilien’s 22,000 assets followed a year later via a restructuring of the group’s bank loans and a fresh capital injection. Some of those apartments were sold to Deutsche Wohnen. Cerberus has a Madrid office and it would be surprising if the firm isn’t soon at the forefront of distressed deal acquisitions there.