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EUROPE NEWS: Lone Star strikes again

The Dallas-based private equity firm is slowly taking down deals as banks in Europe begin to unwind their exposure. PERE Magazine, May 2012 issue

In Europe, Lone Star Funds likes to think of itself as a ‘solution provider’. Well, if recent deal activity in the region is anything to go by, the Dallas-based private equity firm is beginning to help a lot more banks with their real estate loan books.

Last month, for example, Lone Star, through an affiliate of its Lone Star Real Estate Fund II, agreed to buy the A and B notes of Excalibur, Lehman Brothers’ €1.8 billion securitised legacy real estate debt portfolio, from Deutsche Bundesbank. Citigroup and the Royal Bank of Canada are expected to provide about €300 million in senior debt financing to back the acquisition, which is slated to close by the end of the month.

This latest transaction marks the fourth nonperforming loan acquisition by Lone Star in as many months. In addition to a previous Excalibur purchase, the firm also won a €200 million portfolio from Société Générale earlier this month and bought a £900 million (€1 billion; $1.4 billion) portfolio known as Project Royal from Lloyds Banking Group in December.

Indeed, deal flow is beginning to go Lone Star’s way, thanks to the plentiful reasons financial institutions have to reduce their real estate loan exposures. At the MIPIM conference in March, Lone Star’s managing director in Europe, Juan Pepa, said he was seeing significant deal flow from European banks that were under pressure due to mergers, state-sponsored aid and new regulations. “Today, in terms of volume of product in Europe, we see a lot,” he added.

The latest deal involves loans with a face value of approximately €960 million, which reportedly account for the remaining debt in the Excalibur collateralised debt obligation, with the exception of three CMBS positions. In January, Lone Star completed its first Excalibur deal, consisting of a single loan secured by various tranches of the Windermere XIV securitisation. The combined face value of both acquisitions totals approximately €1.4 billion.