Albulus, UKI team up to invest €100m in German NPLs

Hardened veterans of the German non-performing loans sector have long since learned to treat excessive exuberance about forthcoming waves of bank loan sell-offs with a certain disdain. However, a new tie-up between two experienced veterans may prove more fruitful in actually sourcing new deals than emerged from much of the misplaced hype of the past few years.

The London-based UK & European Investments (UKI) and German non-performing loan specialist Albulus Advisors have joined forces to invest up to €100m in German NPLs.  The partners will focus on single loans or NPL baskets. In Germany, Albulus is headed up by founder Ruprecht Hellauer, a veteran of the NPL market from his earlier days at Lohnbach Property Advisors.

Outlining the terms of the partnership, UKI, a property investor and developer, said it intends to allocate €100m in equity to Albulus for non-performing and sub-performing loan investments. Albulus will originate, underwrite and execute the investments, targeting loans with collateral in major German metropolitan areas. Investment focus is on less liquid single loan transactions or NPL baskets at €10m-€50m in equity. The partners will consider loans backed by collateral such as commercial properties, hotels and other operating assets.

“Germany is one of the most attractive markets for non-performing loans in Europe with strong creditor protection and a liquid real estate market,” said Hellauer. “This is an exciting time for us as we are seeing an increased deal flow.” Added UKI Acquisitions Director Adam Golebiowski: “Investing with Albulus is a significant step to capitalise on the European NPL opportunity. We see Germany as one of our core markets in Europe and we intend to increase our asset allocation to the market over the next few years.”

The two companies already have experience of doing joint deals. UKI and Albulus completed a first joint transaction last November, acquiring a loan collateralised by the five-star InterContinental Hotel in Hamburg. It was revolved via an asset sale to Kühne Immobilia, held by Klaus-Michael Kühne, majority shareholder in logistics servicer Kühne + Nagel, who bought the 200-room hotel on the Alster lake in May. A further three transactions are under due diligence and are expected to close in the second half.

Founded in 1980, UK & European is a privately owned property development and investment company with a portfolio across all sectors and developments around Europe, the US and Asia.

Frankfurt-based Albulus is an independent manager founded by Hellauer in 2011, focusing exclusively on originating, underwriting and executing German NPL investments.  The company spends a lot of time scrutinising German actual and potential NPL deals, last year looking at €1.4bn worth and providing indicative offers on about half of them.

In earlier commentaries, Hellauer has proved insightful on why German banks have rejected so many of his company’s indicative offers, primarily ostensibly for price reasons.  Of those deals rejected, he has commented, “We note that all of these loans ended up in restructuring instead of being sold. Banks seem to prefer keeping restructured and potentially sub-performing loans on their books instead of disposing of them.  Insufficient write-downs at many banks, political pressure, the desire by bankers to protect their own jobs and the support provided by internal and external bad bank schemes all contribute to this behaviour.”

In further commentary, Hellauer says:  “The rationale for the trading of higher volumes of NPLs rose in 2012.  From the banks’ viewpoint, the complexity of managing assets – capex, lease-up, fire protection issues – and the loan work-out challenges increased the longer they held on to non-performing loans. This year’s themes are operating assets, uncooperative borrowers, asset management challenges and the seasoning of the loans allowing for higher write-downs. A pipeline of deals has emerged due to these factors.

“However, this pipeline is still largely blocked by these constraints, and our biggest competitor might not be other bidders, but the banks themselves, which continue to keep on restructuring. This defers – not resolves – the problem.

“The result is that a fragmented market is becoming even more fragmented. It is substantially different from the last NPL cycle of 2003 to early-2008, which was all about volume. The current cycle requires considerably more effort to identify and gain access to deal-flow.  This makes the market less attractive for larger scale investors, but more attractive for specialised investors targeting smaller portfolios or single lines – which frankly suits us down to the ground.”