Starwood sells debt adviser Hatfield Philips to Situs Group

Situs announced today that it has completed the acquisition of rival European real estate debt advisor Hatfield Philips International for an undisclosed sum from Starwood Capital affiliate, Starwood Property Trust.

HPI’s chief executive Blair Lewis is staying on to integrate HPI, which will rebrand as Situs, and he will oversee the loan servicing and non-performing loan business as an executive managing director.

Steve Powel, Situs’s CEO, said the acquisition was “an off-market trade” and that his Houston-headquartered firm had approached Starwood more than once about buying HPI. Starwood acquired the business as part of its $1 billion acquisition in January 2013 of HPI’s parent, LNR.

Almost 90 percent of HPI’s revenues are from CMBS special servicing and non-performing loan due dilligence and servicing, while Situs’s European debt advisory work is skewed towards lower margin primary and master servicing.

Situs’s loan servicing clients include Deutsche Bank and Bank of America Merrill Lynch as well as non-bank lenders.

Powel said: “We’ve always felt HPI was the best in class in the special servicing and NPL space and there is a lot of synergy between the balance of our platform and the skill-set Blair has in his team. We’re a fairly large special servicer in the US and we’ve been expanding in Europe in the primary as well as the special servicing business and we want to be a leading firm.”

Adding HPI’s $15 billion of total assets under management takes Situs’s European AUM to  over $40 billion and combined global AUM to $160.6 billion, Powel said. The combined Europe operation will have about 160 staff.

Lewis said HPI has tripled NPL revenue in the last three years to offset the continuing run-off of the CMBS legacy book. Now “they are pretty evenly matched, 50:50 in terms of revenue,” he said,

“The NPL market in Europe hasn’t played itself out and we continue to follow clients into different markets: CEE, Germany – the two main deals that were in the market this year we underwrote and are servicing – and a French deal that signed a month ago. We also continue to look in Spain and Italy and these markets are all at different parts of the cycle and there’s a lot on the runway for the next 24 months…That’s the pure underwriting and then the tail is the servicing and that can run from 18 months to three years.”

Powel said that while NPLs remain a good opportunity for several more years “our business is growing on all fronts. We have between 40 and 50 master servicing agreements with some of the largest banks, private equity and pension funds and that allows us to provide a variety of services.”

Situs is itself under new ownership since 31 March 2015 when it was acquired by private equity firm Stone Point Capital and Powel said the firm is actively looking for more European businesses to acquire, in equity as well as debt: “We’re hoping to do a number of other transactions here.”

Last month Christian Bearman was hired from Valad as the new Europe CEO replacing Texan Bruce Nelson, who has retired. Significantly Bearman has an equity, rather than a debt background.

In Europe Situs also recently hired US appraisal firm Altus Group’s head of Europe, Taco Brink. Altus developed a valuation package called Argos which is the main rival to Situs’s own offering, RERC. Powel said part of Situs’s future expansion could be providing technology solutions to clients.

“We’re trying to provide operational efficiencies for our clients and that could be via a combination of people, processes or technology. We’ve invested in a lot of technology.”

Starwood is retaining a minority, non-controlling interest in Situs. Commenting on the timing of the HPI sale, Lewis said: “When you look at the way things have developed, there was some wood to chop. A lot had come to fruition in the way we wanted to build up the NPL team and it made sense to start entertaining those discussions.”