Lone Star, JP Morgan buy Dutch bad bank for €895m

Lone Star and JP Morgan have struck a deal to buy the Dutch ‘bad bank’ Propertize for €895.3 million, representing the largest sale of legacy real estate loans in the Netherlands to date, writes PERE’s sister title Real Estate Capital 

The purchase puts the joint venture in control of the remaining assets from the former property finance division of Utrecht-based financial services group, SNS Reaal, which was nationalised by the Dutch state in 2013.

JP Morgan is to buy the performing element of the portfolio and will fund Dallas-headquartered Lone Star’s (pictured) purchase of the non-performing debt. The deal is reminiscent of the joint venture’s 2014 acquisition of the €4.4 billion face-value Spanish loan portfolio of Eurohypo, which was known as Project Octopus. In that deal, Lone Star took on the non-performing debt, financed by JPMorgan, while the investment bank bought the performing element of the book.

Propertize’s 2015 results showed that it had total assets of €4.1 billion, down from €5.3 billion at the end of 2014 and including €3.2 billion of loans, net of impairments. A total of €979 million of loans on a net basis were categorised as ‘healthy’, almost €2 billion as ‘value-retention’ and €252 million as ‘stop-loss’.

Taken on a gross basis, Propertize’s €4.7 billion loan exposure included almost €3 billion of non-performing loans. Of the gross €4.7 billion, offices and residential property each backed roughly €1.2 billion of debt, with the remainder secured by retail and industrial and a small element unsecured.

Lone Star and JPMorgan agreed yesterday (28 June) to buy the company through the purchase of its shares. The deal is expected to close in September. Of the total purchase price, €22.5 million is to be paid pending conditions relating to the liquidation of a real estate project.

The total proceeds for the Dutch state rise to €940.8 million including a €45.5 million dividend paid out to the state by Propertize earlier this year. Under the terms of the deal, the state will take on Propertize’s debt, in the form of state-guaranteed bonds, which will then be paid off by Propertize.

The sale process for Propertize, dubbed Project Swan, was launched in December 2015. The NLFI, a body founded in 2011 to manage the shares of nationalised Dutch financial institutions, had urged that there was a good chance of selling the bad bank in its entirety due to improved market conditions.

Last October, Dutch finance minister Jeroen Dijsselbloem stipulated that the sale proceeds must exceed the anticipated proceeds of winding down the loan book over a longer period of time and that the sale must recoup the state’s €500 million of capital expenditure on Propertize.

There was initial interest from 84 parties, of which more than half went on to explore the sale after signing non-disclosure agreements. By April 2016, four parties had submitted indicative offers which were sufficient to take them through to a second round of bidding. Two parties subsequently dropped out of the race. Lone Star and JP Morgan were up against a consortium comprising Goldman Sachs and Cerberus Capital Management, Bloomberg reported in June.

Propertize was initially given ten years during which it had to wind down its book.

The Project Swan sale represents a major deleveraging of Dutch real estate debt. In its European Real Estate Loan Sales Market Q1 2016 report, Cushman & Wakefield Corporate Finance said that European asset management agencies such as Propertize were behind some of the largest loan sale opportunities in the European market. The firm estimated that a successful sale of Project Swan would take the Netherlands’ real estate loan sale market volumes past its annual forecast.