WestImmo bidding process heating up, Aareal re-enters fray
The bidding process for WestLB’s property financing subsidiary WestImmo is heating up, with the arrival of a number of new bidders in advance of an August deadline. The deal is potentially worth more than €300m. WestLB is being forced to sell the unit in return for receiving bailout funds of €3bn in €2008.
The Wiesbaden-based lender Aareal Bank and Berlin Hyp have now reportedly joined the bidders in the rejuvenated sales process being handled by WestLB’s ‘bad bank’ Erste Abwicklungsanstalt (EAA), which has been charged with winding down the erstwhile Landesbank’s assets.
The Düsseldorf-based EAA, which is aiming to have completed the sale of WestImmo by the end of the year, said it has now received a dozen expressions of interest in buying WestImmo. These are thought to include private equity groups Blackstone, Apollo and KKR, while Aareal’s entry into the bidding process could be significant, as it had previously thrown its hat in the ring only to subsequently withdraw.
It was said at the time that Aareal withdrew from the bidding because personnel costs at WestImmo were too high, although the loan book could have fitted in well with Aareal’s own book. The Mainz-based WestImmo, then as now, has about 300 staff. Aareal then went ahead towards the end of last year and bought commercial lender Corealcredit from US private equity group Lone Star for €342m.
A recent analysis by trade publication Börse Online suggests that the Corealcredit loan book has turned out better than expected, so Aareal may feel that having got a great deal last year they can afford to come back for more.
Berlin Hyp is itself undergoing re-organisation as part of the Landesbank Berlin Group, but significantly boosted its 2013 property lending by 55% to €4.5bn.
The bidding for WestImmo is thought to be at around €300m, or a discount of around 60% on equity capital. According to a source from news agency Reuters, some bidders are offering more than the €300m or “a bit more than half” of WestImmo’s common equity of €575m. Although not allowed to currently write new business, WestImmo posted profits of more than €50m for 2013, based on its €7.7bn commercial property loan book and its further €2bn residential book. A new buyer would also be able to re-activate the bank’s lending, of which the inability to do so is probably currently helping to keep the price low.
Investors have been attracted to Germany's real estate sector in recent months by the reliable income stream that property projects typically offer and by higher yields than those on German sovereign bonds. Investors are also betting on still-rising property prices in Europe's largest economy.
The current sales process, being managed by JP Morgan, represents the second attempt to sell WestImmo after talks with private equity investor Apollo collapsed in the final furlong in late-2001. WestImmo was subsequently transferred to bad bank EEA.
At the time WestLB had said it had a marked preference for a long-term oriented bank to take over WestImmo, preferably a member of the Pfandbrief-issuing community. The arrival of Berlin Hyp and the return of Aareal among the bidders may indicate that there has been some shift in the wind of EAA’s likely selection criteria.