Valad Europe clinch deal to wind down Eurocastle Bridge portfolio

Real estate investment manager Valad Europe won an important workout mandate earlier this month, when it was appointed to manage and sell off six German office property assets, in the so-called Bridge portfolio. The portfolio is part of the Windermere X CMBS originally structured by Lehman Brothers investment bank before its collapse in 2008, and has been managed since by the Fortress Investment controlled Eurocastle.

Valad Europe said it was mandated to implement a focused asset management strategy to maximise sustainable value, all within a swift time horizon. “We have been appointed with a clear remit to increase the weighted average lease term, reposition existing tenants and introduce new tenants, as well as maximise value through the disposal of either individual or portfolios of assets,” said Valad’s Head of Germany Andreas Hardt.

The Bridge portfolio has had a chequered history since Lehman Brothers originally provided €372.1m whole loan finance for Eurocastle’s €482m purchase of the portfolio in 2006, which included an interest-only €30m junior loan. The seller at the time was Deutsche Bank’s open-ended property fund Grundbesitz-Invest. Lehman Brothers subsequently hived off the €342.1m senior loan into its Windermere X CMBS transaction.

Special servicer Hatfield Philips International replaced the Eurocastle-controlled asset manager, when Eurocastle’s attempts to negotiate a three-year loan extension to January 17 failed after it showed unwillingness to pump in new equity. The Bridge portfolio had a September 2013 valuation of €325m, while its burdened with the €370.1m loans.

The six assets consist of: the 44,000 sqm Galluspark office in Frankfurt; the 17,300 sqm Am Unisys-Park 1 in Sulzbach by Frankfurt; the 48,000 sqm Alt Moabit 91 office in Berlin; the12,000 sqm Kaiserswerther Str. 117 – 119 office in Düsseldorf; the 40,000 sqm Alfred-Herrenhausen-Allee 1 office in Eschborn by Frankfurt; and the 30,000 sqm Abraham-Lincoln-Park 1 office in Wiesbaden.

The Galluspark in Frankfurt (let to Deutsche Bahn for about €4.98m per annum) and the Sulzbach asset, let to Clariant GmbGH for €1.65m annually, are likely to be a priority for Valad to sell off, probably by the end of this year. The Berlin and Düsseldorf assets are both multi-let with a weighted average lease term of 3.1 years and 3.5 years respectively, with Texas Instruments being the largest of a variety of tenants. The two assets have 8.8% and 10.9% vacancy rates, and with some tenant upgrading and fresh lease agreements could also be sold by this year, all going well.

The Eschborn property, just outside Frankfurt’s city limits to benefit from more favourable local taxes, is let to Vodafone for its German headquarters on an annual lease of €7.2m. Vodafone plan to leave at the end of their lease in 2017, but has sublet much of its current space to multiple tenants. Valad will need to renegotiate these leases, along with its major tenant in Wiesbaden, cyber-security company CSC Ploenzke, whose lease also expires in 2017.

Valad Europe’s chief operating officer Christian Bearman commented on Valad Europe’s track record in managing complex workouts for banks, noteholders and receivers across Europe: “Over recent years we have been appointed on over €1.5bn of bank workout and CMBS mandates with highlights including two German retail CMBS mandates, the Landmark and Dutch Offices I & II portfolios in the Netherlands, the Gemini CMBS mandate in the UK, the Kefren Properties portfolio in Sweden and the ECREL portfolio across Germany, the Netherlands and the Nordics.”

Valad Europe has offices in Berlin, Düsseldorf, Frankfurt, Hamburg and Munich, and with 37 staff manages 1.4m sqm of property assets worth €900m, including 730 different tenants.