Eurocastle 'Bridge' portfolio goes to Apollo, Publity for €330m

US-based investor Apollo and German asset manager Publity have emerged as the buyers of the large German office assets forming the collateral of the Eurocastle 'Bridge' loan in the legacy Lehman Brothers Windermere X securitisation.

Eurocastle, an affiliate of US private equity investor Fortress, had originally bought the six-asset portfolio in 2007 from a Deutsche Bank open-ended fund for €482m. The senior loan of €370m subsequently became non-performing and ended up with special servicer Hatfield Philips.

Private equity Group Apollo has now bought five of the six buildings in a share deal worth €270m, while the Leipzig-based Publity acquired the last remaining asset in a direct transaction worth €60m.

The Publity asset is the 40,000 sqm 23-storey former regional headquarters of Vodafone in Eschborn, outside Frankfurt, built in 2002. Although largely vacated by Vodafone, the telecoms company continues to pay the €7.4m annual rent until end-2017.

Hatfield Philips International (HPI), which was appointed special servicer to the portfolio, said "the pricing achieved was greater than the latest public valuation, and net proceeds from the disposal are expected to fully cover the outstanding principal and interest on the senior loan and and partially repay the amount outstanding on the Junior Loan,' the company added.

The 190,000 sqm portfolio consists of six office buildings producing €28m in annual gross rents. Apart from the Vodafone proeprty in Eschborn bought by Publity, they include the 44,300 sqm Galluspark in Frankfurt, entirely leased to Deutsche Bahn; the 48,100 sqm Alt Moabit 91 in Berlin, the 29,800 sqm Abraham-Lincoln-Park 1 office in Wiesbaden as well as assets in Düsseldorf and Sulzbach.

According to a report by CoStar Finance, Apollo is already in the process of refinancing its all-cash share purchase of the five assets with a variety of different banks, including Goldman Sachs, Deutsche Bank and Bank of America Merrill Lynch, and looking for a 70% facility, which suggests a new senior loan of €185m. Such a loan is likely to in turn be securitised, thus re-introducing the portfolio to a much-diminished European CMBS pool.

CoStar cited a recent valuation of the five Apollo assets of €285m, implying a 5% discount on the portfolio's current value. The valuation on the Eschborn property was put at €74.1m two years ago, before Vodafone took the decision to vacate. This would account for the discount which Publity received in buying the building for €60m.

HPI was appointed special servicer on the loan after the borrowing entities, a unit of Fortress' Eurocastle division, failed to repay it in full on its 15 January 2014 maturity date. HPI then took control of the borrowing entities through enforcement on Luxembourg share pledges and appointed Valad as the new asset manager to enhance the value of the portfolio.

HPI and Valad subsequently hired NAI Apollo and PricewaterhouseCoopers to market the portfolio to potential buyers, culminating in the sales to Apollo and Publity.

The deal marks the third large German portfolio HPI has managed to sell for more than €250m over the last 24 months. We reported in REFIRE on HPI's successful sales of the Margaux portfolio and Treveria Silo E portfolio in December 2013 and 2014 respectively.