Orion winds up opp fund; starts buying for new vehicle

Following the disposal of three shopping centres from its opportunistic Fund III, Orion is busy buying retail assets for its €1.3 bn successor fund, co-founder Aref Lahham tells PropertyEU in an interview.

Hard on the heels of closing the sale last December of Puerto Venecia in Zaragoza, Orion Capital Managers has inked the divestment of the Plenilunio shopping centre near Madrid and Qwartz near Paris, raising a total of over €1 bn in just three months.

The centres, which were all sold to major listed retail specialists - Intu, Klépierre and Altarea respectively - represented the largest properties in Orion’s opportunistic Fund III, which had been investing between 2009 and 2013 and is currently in disposal mode. The three assets were all put up for sale at around the same time - halfway through last year – as the investment market rebounded, according to Orion’s co-founder and managing partner Aref Lahham.

‘We reckoned it would be a good time to sell the three larger shopping centres. REITs have deep pockets again, cap rates are very low, there is a lot of cash around so this was a strategic decision for the fund,’ Lahham told PropertyEU.

Puerto Venecia – the largest of the three – was put on the market last summer to benefit from the recovery in the Spanish property market. It sold around year-end for €451 mln, or a net initial yield of 5%. The buyer, UK group Intu Properties, was aggressively looking to expand its platform in Spain where it already owns a number of development sites in a joint venture with Eurofund Investments, the former developer of Puerto Venecia led by the Brit Ian Sandford.

Despite its visionary design and strong performance, the 206,000 m2 shopping centre and retail park had been a massive headache for its previous owners, UK REIT British Land and Copcisa Corporación, a local Spanish developer.

Cash-strapped Copcisa is believed to have sold a 50% stake in the ambitious project to Orion in May 2011 for €48 mln in cash. The remaining 50% stake was acquired by Orion two-and-half years later for €144.5 mln from British Land. It was the first - and best - asset to be sold by the UK REIT after announcing plans to retreat from Continental Europe in the spring of 2013.

Plenilunio mall
Shortly after marketing Puerto Venecia, Orion hired Cushman & Wakefield to divest Plenilunio to the northeast of the Spanish capital with a price tag of around €400 mln. ‘Spain had become the flavour of the month so Orion saw an opportunity to crystallise a gain,’ commented a market expert who wished to remain anonymous.

The 70,000 m2 mall, anchored by Spain’s largest Primark store, is believed to have attracted strong interest with retail specialist Klépierrre eventually prevailing over other bidders with an offer of €375 mln. The asset sold in March for a yield of less than 5%.

Orion had bought Plenilunio in 2009 from Santander’s Banif fund for €235 mln - a 26% discount to the value of the asset at the end of the fourth quarter of 2009 (€320 mln). The 2009 deal reflected a yield of 7.5%.

Opened in 2006, the mall offers over 230 shops and attracts around 10.5 million visitors each year. It is virtually fully let with a financial occupancy rate of 99.3% and generates roughly €21 mln of annual gross income. 'Plenilunio is the major shopping centre for all retailers looking for a location in the area east of Madrid,’ commented Rupert Lea, head of retail capital markets at C&W. ‘Despite the crisis it has always had strong demand. I believe that this is the last major shopping centre to sell in Madrid for the next 10 years. The price achieved is yet another indication of the new market trend: strong demand and lack of prime product.'

For Klépierre the acquisition was part of its strategy to increase its presence in Madrid, where it already owns Principe Pio (northwest) and La Gavia (southeast), which turned in a strong performance over 2014. At 7.6%, Klépierre’s Spanish operations reported the highest increase in year-on-year retail sales last year. The deal nearly doubles the French group’s Spanish portfolio which is now valued at €1.4 bn, or around 7-8% of the group’s total portfolio.

Long development story
The most recent sale involved Orion’s half share in the Qwartz regional shopping centre outside Paris. The 86,000 m2 centre in Villeneuve-La-Garenne opened just a year ago and was sold by Orion to its partner in the project, French retail investor Altarea-Cogedim. The transaction was based on a full market valuation for the centre of €400 mln, or a yield of 4.75%.

Lahham conceded that in this case the timing of the sale was not perfect. ‘We would have preferred to sell this asset a bit later on, because the mall is only at the beginning of its performance and is expected to go from strength to strength,’ he noted.

The sale of Qwartz in Villeneuve ends a rather long – yet quite profitable – development story for Orion. The firm inherited the land plot on which the mall was built in 2001, when it took a French property company private through its Fund I (Orion was founded two years earlier, in 1999). The company – LocaFinancière – owned several shopping centres and other commercial assets which were sold by Orion to Altarea and Société Tour Eiffel in two separate transactions.

Due to the absence of a retail offering in the northern Parisian suburb of Villeneuve-La-Garenne, Orion decided to retain the piece of land for a mall development. The company received planning permission for the mall in 2009 after having agreed a forward sale of the anchor store to Carrefour.

At the time, Orion decided to team up with retail specialist Altarea which acquired a 50% share in the development, while the remaining 50% interest in the project was transferred from Orion’s Fund I, which was at the end of its life cycle, to Fund III.

In the following years the two business partners completed and leased the entire development project, which opened in 2014 offering 63,300 m2 of gross space across 170 stores and 3,000 parking spots. The asset is believed to generate around €19 mln in annual rents.

‘Working together with Altarea we were able to fully let the asset,’ Lahham said. ‘For us, this means we have reached our objective and it is time to take the profit off the table and move on.’

Altarea, a retail developer and asset manager, owns around €4 bn of commercial assets largely located in France, which accounts for 87% of its portfolio by value. The company is understood to be in the process of selling the bulk of its Italian portfolio to Tristan Capital Partners for a price of €120 mln.

According to well-informed market sources, Altarea is selling two shopping centres totalling 40,000 m2 in Piedmont as well as the Casetta Mattei retail asset in the southeast of Rome and the Ibleo shopping centre (26,000 m2) in Ragusa, on the island of Sicily.

Once the sale has been completed, Altarea’s Italian portfolio will comprise a development project in Genoa, Ponte Parodi, which is due for completion in 2017-2018, as well as two shopping centres in the Lombardy region, Le Due Torri and La Corte Lombarda.

Company profile
Orion Capital Managers is a London-headquartered private equity real estate investment firm with a European focus on value-add and opportunistic transactions. It is wholly owned by its founding partners and has offices in London, Madrid, Milan and Paris. The firm is currently focusing on the sale of the remaining assets in its Fund III – a couple of residential development projects in London, while carrying on with the investment programme for the follow-on fund.
Orion launched Fund IV in December 2014, raising €1.3 bn of equity commitments. ‘We have been busy buying a lot of retail in different places across Europe for this fund,’ commented founding partner Aref Lahham. Recent transactions include the purchase out of insolvency of the Lilien Carré shopping centre in the German city of Wiesbaden for around €100 mln; a portfolio of three shopping centres in northeast Italy from Unicomm for a price understood to be around €200 mln and the joint purchase with Cerberus of a Spanish tourist resort in Cadiz from NH Hotels Group for €225 mln.

Virna Asara
Southern Europe correspondent