Let the games begin

The 2012 Olympics have boosted the city's property market, but the impact on opportunity funds maybe minimal.

It's becoming something of a tradition. One city is widely predicted to win the right to host the summer Olympics, the bookmakers back it up….and then the International Olympics Committee defy the odds and choose the city everyone thought would be runner up.

While some Londoners are grumbling at the thought of paying a tax in order to allow thousands of extra tourists to descend on the city in seven summers time, the authorities which backed the bid have started to emphasize the amount of investment in transport, infrastructure and real estate the East End will receive. The development of the venue for the games is widely being described as “transforming” the Lower Lea Valley area, which currently consists mainly of empty brownfield space next to London's second river.

The real estate being developed for the games includes a 500-acre Olympic park housing a new 80,000-seat stadium, four multi-sports arenas and around 9,000 new homes. On the nearby 180-acre Stratford City site, the Olympic village will include more than 5 million square feet of offices, 1.6 million square feet of retail space and 4,850 new homes.

Property share prices rose sharply following the announcement of London's victory. Songbird Estates, the consortium founded by Morgan Stanley and Goldman Sachs' Whitehall fund for the acquisition of Canary Wharf, saw its share price jump 11 percent to 138p; Developer Quintain saw a 4 percent rise to 565p. Hospitality and building companies also saw a share price rise on the news. Market commentators are suggesting that the Lea Valley could soon be seeing the same property values more common in Docklands.

But despite the general excitement in the London property market, the Games seem unlikely to present large numbers of new investment opportunities for opportunistic funds. The market for the development contracts is not only highly picked over, but more visible and politicized than the average opportunity fund would like; and even before the bid was successful, the area's property prices had already seen significant lift on the back of expected development work, suggesting that the market is no longer at its bottom.

Even if the tenders were of the right scale and type, there would be another big reason why they would be of little interest to the average private equity real estate investor: the length of commitment required. As one opportunity fund partner notes, “2012 is just too distant in the life of most private equity real estate firms.”


DB buys Dutch offices
DB Real Estate has formed a joint venture with the Dutch private estate investment group Lips Capital to acquire a portfolio of offices in the Netherlands. The deal was reportedly valued at €185 million ($225 million), slightly short of the €200 million price guide set by Jones Lang LaSalle. The vendor was Amsterdam-based pension fund BPF Bouwinvest. The portfolio consists of 20 office buildings, the majority of which are located in the Randstad, the urban area between the Hague, Rotterdam and Amsterdam in the west of the country. It accounts for around 25 percent of BPF's property portfolio.

Pramerica invests in storage
Pramerica Real Estate Investors has invested €15 million ($18 million) in Blue Self Storage, a Spanish operator of self-storage facilities. The company, which was established in 2002, currently operates three self-storage sites in Barcelona and one in Valencia. It will use the investment to expand its existing operations, and to finance a new facility in Madrid. Pramerica is the European arm of the real estate investment and advisory business of the US's Prudential Financial. To date it has invested $500 million in the self-storage sector worldwide. In 1998 it formed a joint venture with Extra Space Storage in order to acquire and develop such facilities. Another of the firm's recent deals included last June's €35.8 million acquisition of a 94 yearold listed building in Helsinki, Finland, by one of its German TMW funds.

Tchenguiz continues pub spree
Robert Tchenguiz, the property tycoon behind the private investment vehicle R20, has continued to grow his pub empire through two more acquisitions. Laurel Pub Company, the managed pub company which R20 acquired for £151 million (€217 million; $262 million) last November, paid £80 million to acquire SFI group, which operates chains including Slug & Lettuce and the Litten Tree. This follows its £202 million acquisition of Yates Group in May, and brings the company's total number of pubs to 405. In a separate deal, Tchenguiz's other pub business, the Globe Pub Company, paid £80 million to acquire the 231-outlet Heritage Pub Company. Globe was set up last December as a platform to create a tenanted pub business through the £345 million acquisition of Spirit Group.

Carlyle completes 3rd Italian deal
The Carlyle Group and Operae, the Italian group headed by Vittorio Casale, have formed a joint venture to acquire a portfolio of 26 office buildings in northern Italy from real estate company Beni Stabili Group. The deal was valued at €255 million ($210 million). The buildings are located in the historical centers of Milan, Rome and Turin, and are mainly leased to Banca Intesa. This is the third acquisition that Carlyle's European real estate team has made in Italy. In March 2003 it acquired a portfolio of 36 properties from the country's finance ministry in a €230 million deal. Last November, it teamed up with Austria's Immofinanz to acquire a portfolio of 230 properties from San Paolo IMI for €320 million. In July it announced the sale of six of those properties in northeastern Italy for around €100 million.

GE buys Bohemian shopping center
ING Real Estate, the property arm of the Dutch bank, has sold a shopping center in the Czech Republic to GE Commercial Finance Real Estate. The value of the transaction was €45 million ($54 million). The IGY shopping center, located in southern Bohemia, is fully leased and contains a 21,400 square meter retail area, as well as office space.

Another German deal for Fortress
Fortress, the New York-based private equity and hedge fund manager, has acquired another portfolio of German housing in a deal valued at €1.5 billion ($1.8 billion), according to Financial Times Deutschland. The firm is understood to have beaten rival bids from Deutsche Bank and a consortium consisting of Goldman Sachs and Cerberus to acquire the Nileg portfolio from the Hanover-based Norddeutsche Landesbank. Fortress, which recently raised a €2 billion fund aimed specifically at the German residential market, is thought to be putting at least €300 million of equity into the deal. It plans to combine Nileg, which consists of 27,000 homes in northern Germany, with Gagfah, the 48,000-unit state-owned housing group that it took over last year in a €3.5 billion deal; it is also reported to be planning a partial flotation of the company.

Consortium markets London's Centre Point
Centre Point, the 35-story landmark office tower in London's west end, has been placed on the market by its private equity real estate owners for a price of £85 million ($149 million, €123 million). The Blackmoor Limited Partnership, a consortium including Apollo, Europa and Deutsche Bank, acquired the building as part of the £495 million Oldham Estates portfolio in June 2000. Since then, the owners have renovated the entrance hall, upgraded the elevators and added a bar. A planning application for a restaurant on the top two floors has also been placed with the local authority. Around 80 percent of the building is currently leased.

Doughty exits Denmark
Doughty Hanson and Sjaelsoe Gruppen, the Danish property developer, have sold an office building in central Copenhagen to DAI, the financial services subsidiary of Danish bank Egnsbank Han Herred. The purchase price of the property, which contains 15,500 square meters of teaching and administrative offices and is rented by the city government, was not disclosed but is believed to be around Dkr 300 million ($49 million; €40 million). DAI made the investment through its real estate subsidiary and aims to sell shares of the company to investors.

Abbey down to final three
Morley Fund Management has dropped out of the race to acquire the 128-building portfolio being sold by Abbey National, the UK bank owned by Spain's Banco Santander. The high price of the portfolio, which is reported to have received bids of around £1.3 billion ($2.3 billion; €1.9 billion), is thought to have proved too much for the UK fund manager and its co-bidder, Anglo Irish Bank; the buildings were originally valued at around £1.2 billion. The three remaining bidders, each of which submitted a final offer in early July, are: REIT Asset Management with Apollo Real estate and two private investors; ING with JP Morgan; and a consortium of Prudential, Royal Bank of Scotland and Goldman Sachs. The sale process, which began in April, is being managed by Richard Ellis.

Duke Street sells hotels to Eurazeo
A consortium led by middle market private equity firm Duke Street Capital has sold hotel company Financière Galaxie to Eurazeo, the Paris-listed private equity firm, for an undisclosed price. Founded in 1990, Financière Galaxie is the operator of the French budget hotel chain B&B Hotel and runs 100 budget hotels in France and eight in Germany. Duke Street originally acquired the company from two private individuals and 18 financial institutions in July 2003. Three co-investors, including London-based Hermes Private Equity, acquired a 23 percent stake in the company in that transaction. Earlier this year, Eurazeo, through the investment fund it started with Colony Capital, Colyzeo, made a €1 billion investment in hotelier Accor