Lone Star buys TLG Immobilien for €1.1bn

The Dallas-based firm has agreed to buy TLG Immobilien for €1.1 billion, giving it exposure to around 800 buildings in the former East Germany.

Lone Star has struck one of the largest commercial property transactions in Germany this year and the first privatization in the country since the onset of the global financial crisis. The Dallas-based firm, which has been active in Germany and the UK in particular this year, has agreed to buy TLG Immobilien for €1.1 billion, according to the German Finance Ministry.

“Finance Minister Wolfgang Schaeuble has awarded the contract for the biggest property transaction in Germany this year,” said the ministry in a statement. “The buyer wants to continue the business and strategically develop its portfolio,” it added.  

According to Alexander Hesse, managing director of Lone Star’s German business, TLG has “attractive properties in good locations,” most of which were acquired or developed in the past 10 years. TLG, which was set up to manage assets in the wake of Germany’s reunification in 1990, owns retail, offices, warehouses and hotels in the former East Germany, with many of the assets being in Berlin, Dresden and Rostock.

The assets have been purchased by Lone Star’s Real Estate Fund II, a $5.5 billion fund that closed in May 2011 and reportedly bought the A and B notes of Excalibur, Lehman Brothers’ €1.8 billion securitised legacy real estate debt portfolio, from Deutsche Bundesbank earlier this year.

While Germany has witnessed some large distressed deals this year, it has been mainly state sellers providing the deal flow. As part of Germany’s efforts to pare down its real estate holdings, last month the state also sold TLG’s 11,000-strong residential portfolio to TAG Immobilien for €471 million.

Other eye-catching transactions include Pacific Investment Management Company (PIMCO) buying a €238 million Lehman Brothers real estate debt portfolio from the Bundesbank in August. That transaction marked the second time this year that the fixed-income investment behemoth had acquired a portfolio from Germany’s central bank. The first time arrived at the end of March, when it bought the €1.4 billion Diversity Funding CMBS related to Lehman’s securitisation of the UK’s Northern Rock commercial real estate loan portfolio.

A government spokesman told Reuters that Lone Star had agreed to pay €594 million in equity and was assuming approximately €500 million of debt in the transaction. Meanwhile, Bloomberg said The Blackstone Group, Morgan Stanley Real Estate and Cerberus Capital Management also bid for the company.

According to participants at this year’s PERE Germany Roundtable in Frankfurt in September, although most of the large transactions of interest to opportunity funds have been state sales, banks would soon provide significantly more deals as they look to reduce debt.