The Propertize deal is believed to represent the largest sale of legacy real estate loans in the Netherlands to date and marks a 30% discount on the assets’ value.
Back in June it emerged a joint venture between US private equity firm Lone Star Funds and JPMorgan Chase & Co was acquiring Dutch state-owned bad bank Propertize, and its €4.7 bn portfolio of loans, in what is believed to be the largest property loan sale in the Netherlands since the financial crisis. As part of the deal, expected to close in September, the two partners will fork out a total of €3.25 bn for the entire platform, a discount of just over 30% to the gross value of the Propertize assets.
The Dutch state will also take over the outstanding guaranteed debt of Propertize, a bond with a par value of €2.35 bn, and soon thereafter will receive the same amount, plus accrued interest, from Propertize. To make the payment Propertize will use available equity as well as finance from the buyers, said a spokesperson for Propertize’s owner NLFI (Netherlands Financial Investments). The transaction will thus end the state guarantee on Propertize’s loans.
Sales process
Propertize was set up in 2014 to dispose of soured real estate loans after SNS Reaal was nationalised. At the time it received a €500 mln equity capital injection from the Dutch state. It was put on the market in October last year by NLFI, which manages nationalised financial companies on behalf of the Dutch government. Against a background of strong investor interest in the Netherlands, the Dutch Finance Ministry decided to privatise Propertize. The bad bank was initially given a period of 10 years to dispose of its assets, which involved gross loans with a value of €4.7 bn at the end of December 2015. The sale process started with an advertisement in the Financial Times on 9 December 2015. Since then, more than 40 buyers expressed interest in Propertize and two bidders eventually submitted binding offers. The other party was reportedly a venture between Goldman Sachs and Cerberus. In an advisory report to the country’s finance minister Jeroen Dijsselbloem, NLFI said that JP Morgan and Lone Star’s bid was higher than any other in the final round of the auction and also placed fewer long-term risks on the state. It added that if the state had wound down the portfolio itself, expected to have been a two-year process, it would have been exposed to the risk of worsening market conditions.
‘JP Morgan/Lone Star was selected as the most desirable buyer, in view of the content of the offer compared to both the offer from the other bidder and the plan for winding down Propertize,’ NLFI wrote in the letter, adding that the offer was higher, both in an absolute sense and weighted according to risks, than the offer received from the other bidder and the €500 mln of equity which Propertize received from the state when it was set up.
When the deal is closed, Propertize will continue to manage its current loan portfolio, which consists of €1.17 bn of residential assets, €875 mln of retail properties, €1.15 bn of offices and other asset classes including €587 mln of commercial assets, according to Propertize’s 2015 annual report. Nearly €3 bn of the loans, or 63%, are non-performing while performing loans comprise 37% of the portfolio. The portfolio, consisting of roughly 1,600 loans, had a net value of €3.4 bn at year-end 2015, €2.8 bn of which was in the Netherlands.
The acquisition is the second major joint investment by Lone Star and JP Morgan. Last year they won Commerzbank’s €2.2 bn European commercial real estate loan portfolio, one of the biggest deals of the year. Lone Star and JP Morgan split that portfolio. Lone Star took the non-performing loan assets and JP Morgan the performing portfolio. They will adopt a similar formula in the Propertize deal. Lone Star will own Propertize and JP Morgan will take on a portion of the performing loans and will fund Lone Star for the purchase.
