Doughty hits high note in Germany

Doughty Hanson, the London-based private equity firm, has sold the landmark Maximilianhofe office and retail development in Munich for €270 million ($350 million). The buyer was Quinlan Private, the real estate firm founded by former Irish tax inspector Derek Quinlan.

The sale has generated a return of 5.7 times the firm's equity investment, including a refinancing in November 2005 that returned €29.9 million to Investors.

Doughty took over the project, located on a site between the Bavarian State Opera and Kempinski Hotel Vier Jahreszeiten, from Hypo Bank in 1999. Hypo won the right to develop the scheme in a public-private partnership with the State of Bavaria but decided not to pursue it following a merger with Munich-based group Bayerische Vereinsba

In return for development rights, the State of Bavaria required the development of a rehearsal facility for the State Opera.

After acquiring the rights to the project, Doughty agreed to mitigate its development risk by postponing acquisition costs of a leasehold interest until planning permission was granted. It also struck a deal allowing it to back out of the purchase if it failed to win rights for a minimum project size. Ultimately, the State granted Doughty the rights to develop 25 percent more commercial space than originally envisaged.

Doughty bought the leasehold interest in 2000 before embarking on clearance and development of structures that had partially been rebuilt after being damaged in World War II. Six years later, it bought the freehold as well. Both interests have been sold to Quinlan.

The 20,000-square-meter development has attracted tenants including Bain Capital, and law firms Weil Gotshal and Manges, Kirkland and Ellis, and Milbank Tweed Hadley and McCloy.

Sebastian Greinacher, a principal at Doughty, led the deal. The firm invested in the site out of its first European Real Estate fund, which has so far sold 16 of 21 investments. The vehicle has returned 3.7 times the fund's cash investment and hit a gross internal rate of return of 38 percent.

Doughty's European Real Estate II fund closed on €590 million in mid-2006 and has so far invested €130.8 million in five deals in the UK, Italy, and Sweden.