TPG and Patron set new benchmark with former Lehman portfolio

The sale of the Uni-Invest portfolio on Tuesday has set a new standard in the Dutch office market and highlighted the poor quality of properties packaged together in commercial mortgage back securities (CMBS) at the peak of the market.

Uni-Invest was delisted from Amsterdam stock exchange (now Euronext Amsterdam) in 2002 and taken private by a consortium led by Lehman Brothers. Eurohypo provided a loan for the assets back in 2005 and put it into a CMBS facility called Opera Finance, which had an initial volume of about EUR 1 bn.

During an extraordinary meeting held in Amsterdam this week, senior noteholders in the Opera Finance CMBS backed a workout option proposed by private equity groups TPG Capital and Patron Capital Partners after an alternative consensual restructuring option put forward by asset manager Valad Europe was shot down. Under the successful credit bid from TPG and Patron, the two private equity partners paid EUR 359 mln for the portfolio, marking a 40% discount on the last valuation carried out in April 2011. Opera Finance (Uni-Invest) is reportedly the first CMBS in Europe to default on maturity.

Uni-Invest ran into trouble after being forced to cancel an initial public offering on Euronext in 2007, due to 'adverse market conditions'. The IPO was designed to raise EUR 373 mln, which would have been used to repay Eurohypo part of the loan. A formal default followed on the maturity deadline in mid-February this year after an unsuccessful attempt to sell the portfolio at a 40% discount last year.

Following the restructuring of the loan, TPG and Patron plan to aggressively asset manage the assets with the highest vacancy rates and sell assets with a weighted average lease length of less than five years. About 39% of the portfolio’s top-10 leases expire in 2012-13. A small portion of the portfolio will be converted into new uses such as hotel accommodation, residential and student housing.

The Uni-Invest case has been closely monitored across Europe as industry experts say the dual-track procedure may well become the model for dealing with other distressed securitisations. The case also provides a new reference point for Dutch landlords. Banks and investors with vacant secondary assets on their books will now be forced to reassess their portfolios and experts widely consider that further writedowns are inevitable. Indeed, some market watchers claim that even steeper discounts beyond 40% are on the cards for some properties.

Aside from banks, insurers and pension funds also have billions of euros tied up in Dutch offices and commercial properties, although the bulk of the B-grade assets in the country are owned by private investors and investment funds.

The full story appears in the May edition of PropertyEU magazine. Click on the link below to subscribe: