AREA buys stake in £800m UK portfolio

AREA Property Partners has teamed up with F&C REIT to buy a package of properties once owned by Dawnay Day, the property investor whose subsidiary companies were placed into administration last year.

AREA Property Partners has invested part of Apollo European Real Estate Fund III in a portfolio of UK properties once belonging to the collapsed property empire of Dawnay Day.

The European opportunity vehicle, which raised $1.375 billion in 2008, is putting equity into the acquisition alongside F&C REIT Asset Management, a London-based company which AREA has used as a local operating partner in many previous deals.

According to F&C, the joint venture investment vehicle was arranged and is being managed by F&C. It is structured as a JV between Apollo European Real Estate Fund III and Trafalgar Overseas Limited advised by F&C.

The portfolio became available after UK property investor Dawnay Day got into financial difficulties last year. Norwich Union, Dawnay Day’s primary lender, put the firm’s property portfolio into administration. Receiver BDO Stoy Hayward organised a bidding auction for the portfolio, which F&C said was valued at £800 million (€897 million; $1.1 billion).

The package consists of 211 properties. Seventy percent of the portfolio is retail property, such as a store operated by clothing chain Austin Reed on London’s famous Regent Street.

The deal is not yet completed but contracts have been exchanged. It is understood that Norwich Union has agreed to provide a new loan facility to the investment vehicle, at up to £550 million. This implies equity in the deal could be £250 million split between the two separate investors.

The properties were owned by three Dawnay Day subsidiaries that were placed into administration. They were Starlight Investments, Insureprofit and Dawnay Day Properties. The properties are being acquired rather than the three companies.

Dawnay Day's fate has been closely watched in the UK as it became one of the clearest indicators of distress to come amid a credit crunch and property downtown.

Speakers at the PERE Forum: Europe last June flagged the possibility of acquiring assets from Dawnay Day before its subsidiaries were placed in administration.

Several panelists said at the time that private equity real estate firms would be in a strong position to take advantage of such opportunities if they had equity to deploy.

AREA is led in Europe by William Benjamin.

F&C REIT Asset Management was formed last year as a result of a merger between F&C Investments and REIT Asset Management. REIT Asset Management had previously completed a significant number of deals with AREA, previously known as Apollo Real Estate Advisors.