Joint Venture
MStar Europe, the joint venture between US group Starwood and the UK’s M7, has agreed to buy a portfolio of light industrial assets located mostly in France, Germany and the Netherlands for €258.7 million. With a planned target volume of €500m, the acquisitions see the group passing the halfway stage in its planned investment programme.
The 613,000 sqm portfolio consists of 55 properties in Belgium, France, Germany, the Netherlands and Sweden, bought through portfolio transactions and a successful buyout offer for the listed Tamar European Industrial Fund (TEIF), which will see that Fund de-listed from the London Stock Exchange next month. The assets in the Tamar fund were valued at €130m.
The deal included 10 warehouses with lettable space of 153,000 sqm located around the populous Randstad region in the Netherlands, bought from Rockspring for €71m. It also included five light industrial properties in Germany from a fund advised by Valad for €44.7m.
The German assets are in Frankfurt, Pulheim near Cologne, Stelle near Hamburg, and two in Ratingen, near Düsseldorf. At nearly 100,000 sqm, the price equates to just under €450 per sqm. The strategy for Germany is to buy multi-tenanted assets at a unit value of between €3m and €10m per asset, with “plenty of value-added potential”. In other words, MStar will buy portfolios of up to €100m, with vacancy rates of up to a third and in need of capex, even on very short remaining leases, where it can add value through active asset management, it says.
According to Richard Croft, the CEO of M7 real estate, commented: “We set up MStar Europe to seize the opportunities that we identified in continental Europe to assemble a portfolio of high-yielding multi-let assets, some of which require active and creative management. The speed with which we have deployed capital validates that strategy. We continue to see Germany as a particularly attractive market for our value-add or opportunistic approach to investment.”
The deal marks the second light industrial joint investment programme between the Connecticut-based Starwood and M7. The pair set up MStar in June last year, a UK-focused venture, which has since bought 27 assets in the UK with a value of €70m. M7 brings a wealth of experience to the European markets, where it also invests in and manages assets alongside private equity firm HIG Capital and US private equity group OaktreeCommenting on the launch of the European platform, Adam Shah, senior vice president of Starwood Capital said: “These transactions are a continuation of our successful platform in the UK in acquiring light industrial real estate. These assets have strong existing cash flows in place and we expect to drive additional value to the portfolio through our shared expertise in managing these assets.
As to the financing, the ever-vigilant James Wallace over at CoStar Finance has been digging around to get a good picture of just how the whole deal is being financed, particularly the mainly-French assets being inherited from the Tamar European Industrial Fund . He’s come up with the following picture:
The €500m MStar Europe II Fund, which is 95%-owned by Starwood Fund IX and 5%-owned by M7 Real Estate, used a wholly-owned subsidiary Lux Starlight to buy the shares in TEIF for €130m. This involved putting down €66.7m in cash and inheriting the existing debt, consisting of an unpaid balance of €67.2m in mid-April.
The majority of the remaining debt of €60.1m is held equally by Deutsche Bank and Macquairie Bank, who jointly refinanced TEIF on 13th December with a 20-month loan to facilitate the closed-end fund’s wind-up, at a cost of 6.75%. The loan, with a due date of 20th July 2015, included built-in reductions based on business plan targets, including asset disposals and reduced leverage. A further three of the Fund’s assets have a lien on them of €7.1m from BNP Paribas, due to mature in 2016.
All of this leads to a new borrowing requirement of about €85m to refinance the inherited debt, based on a 65% LTV five-year senior loan on a carrying valuation of €130m. The joint venture says it expects to pay about 250 basis points above three-month Euribor for the senior loan. While initial talks have been held, the search for a lender is expected to be stepped up a notch following the formal de-listing of the TEIF from the Exchange in September.
