COMMENT: Blackstone sees value in Multi debt

Media reports that Blackstone has acquired part of Multi Corporation’s debt have led to speculation that Europe’s largest retail developer is unable to meet its financial commitments and that the company is floundering.

Dutch media have even suggested that Blackstone’s approach spells the end of the company founded by chief creative officer Hans van Veggel more than 30 years ago.

Given Blackstone’s reputation as a buyer of undervalued debt paper, a more likely scenario is that the US private equity investor sees more value in the Gouda-based company than other players. And significantly, it has the resources to advance that scenario.

After chalking up over €2 bn of direct investment transactions in 2012, Blackstone was one of the biggest investors in Europe last year according to PropertyEU Research. Distress was one of its key targets and with a track record in debt funding and a war chest of $10 bn to spend globally, it will no doubt continue its hunt for distressed financing constructions.

The question is, however, whether financing debt paper is the same as managing the underlying company. Most professional investment managers would baulk at the idea. The suggestion that some media have made that the Americans are beating down Multi’s doors in a bid to gain control of the company not only goes against the norm in real estate investment management, but also runs counter to Multi’s recent past.

Until end-2011, Multi was financed by Morgan Stanley’s Real Estate Fund (MSREF) V, an investment initiated in 2006 by former head John Carrafiell who also formally served as a member of Multi’s supervisory board. After MSREF pulled out, Multi continued a €900 mln financing deal with a consortium of 11 international banks led by Dutch bank NIBC.

Since that arrangement, Multi has been able to extend its leadership in the European retail arena and emerged as the number one retail developer in PropertyEU’s latest ranking in March this year. The arrival of Blackstone as a new Anglo-Saxon ‘raider’ does not change the fact that Multi has not been a ‘Dutch’ company for almost a decade. A more pertinent question, therefore, is whether Blackstone will operate all that differently to the way Morgan Stanley did in the past.

Van Veggel has worked for more than 10 years with external majority shareholders and with various CEOs. With the arrival of Dick van Well, a former CEO of Dutch building company Dura Vermeer, as supervisory board member, Multi has a strong management platform with company founder Van Veggel as its flamboyant chief creative officer. If Blackstone is serious about its investment in the company, a good working relationship with Van Veggel is vital.

Even more damaging than the recent media speculation that the curtain may be falling for Multi's founding director is the suggestion that the refinancing operation by Blackstone is linked to Multi’s failed management. The financing of a company always has some bearing on the underlying bricks and mortar, but it is never the sole determinant.

When bank loan portfolios are sold at a discount, that does not necessarily mean that the underlying collateral is defective, but that the financing strategy is changing. Multi put its house in order in the wake of the refinancing deal in 2011, the annual figures in 2011 were positive and losses are not on the cards for 2012 either, according to well-informed sources.

Real estate developers are facing tough times and Multi is no exception. They have to fight hard to maintain a positive cashflow as projects are delayed. In Multi's case, dividends may not yet be flowing, but new projects drawing on the €4.5 bn pipeline are on the horizon. Blackstone’s arrival could well generate new opportunities for Multi to expand its mall management portfolio of 50 shopping centres. Blackstone has a portfolio of shopping centres in Turkey following a deal with Dutch retail specialist Redevco and Turkey is Multi’s biggest market outside its home country.

Blackstone’s recent move into French REIT Gecina may be a precursor of what lies ahead for the Dutch developer. Together with Canadian firm Ivanhoé Cambridge, Blackstone increased its share of debt in Gecina to nearly 65%, paving the way for an equity stake in the French REIT. After posting net recurring income of over €300 mln in 2012, the Paris-listed company is forecasting a similar result for the current year. The holders of Gecina’s debt paper may have been distressed, but that doesn’t mean the French company is. If it had been, Blackstone probably would not have been interested.

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