Germany’s Commerzbank has sold around €1.3 billion of non-performing loans to Dallas-based Lone Star Funds and a larger portfolio of performing loans to US bank Wells Fargo. Wells fargo has also agreed to buy the entire operational real estate financing activities of Hypothekenbank Frankfurt in the UK, which used to be called Eurohypo in order to expand its commercial real estate finance business in Europe.
The €5 billion deal has already been well trailed in the European property press, but was signed just today with the seller, Commerzbank, saying the sale price was a “low discount” to book value of about 3.5 percent. The transaction is expected to close in the third quarter of this year, it added.
The portfolio consists of loans in the range of €25 million to €200 million although it does also contain smaller assets that have been syndicated and some mezzanine loans. There are reportedly around 25 loans above 100 percent loan to value. The sub performing loan book and consists mainly of loans against UK assets and some assets in UK regions.
Commerzbank, Eurohypo’s parent company, decided in June to eliminate its €53 billion specialist property lender in order to strengthen its balance sheet to comply with European banking regulations.
Commerzbank added today that the transaction encompassed the relevant interest-rate and currency hedging derivatives, as well as the entire operational business of Hypothekenbank Frankfurt in the UK. It said: “This is one of the largest transactions in commercial real estate loans in Europe of the past years.” Wells Fargo is taking over this business in line with its aspirations to become a significant commercial real estate finance bank in Europe. It is already the largest commercial real estate lender in the US.
Wells Fargo, for its part, has now appointed Eurohypo’s former UK chief Max Sinclair as head of its London commercial real estate office, reporting to Charles ‘Chip’ Fedelan, executive vice president and head of Wells Fargo’s commercial real estate institutional and metro markets group.
Lone Star has not commented on the deal however it is understood the Commerzbank portfolio has been made on behalf of Lone Star Real Estate Fund II. After the investment completes, approximately $2.6 billion of the $5.5 billion raised for its second LSREF fund in May 2011 will have been invested in Europe, and mostly in distressed debt.
Lone Star is currently out raising its next fund. As previously reported by PERE, pre-marketing has begun for Lone Star Real Estate Fund (LSREF) III, after reaching the approximately 85 percent investment threshold for its second vehicle in the series. This time, it is understood to be targeting an equity raise of $6 billion.
Europe likely will see more activity by Lone Star in distressed debt deals, as the activities of the firm during the latter part of the investment period of LSREF II have indicated, including the Commerzbank deal announced today.