Lone Star, the Dallas-based private equity real estate firm, has agreed to buy a stake in a Central and Eastern European property company on behalf of its $7 billion monster fund, it has emerged.
The firm led by John Grayken has agreed to acquire a 27.75 percent of Globe Trade Center (GTC) for €160 million via Lone Star Real Estate Fund III, giving investors exposure to GTC's office, business park, retail and residential portfolio that stretches across Poland, the Czech Republic, Romania, Serbia, Hungary, Croatia, Bulgaria, and Slovakia.
The opportunity has arisen because Kardan, a Netherlands and Israel-listed emerging markets real estate, water infrastructure and financial services firm, is under pressure to meet debt obligations in 2014 and 2015. The stake in GTC is held by Kardan's real estate subsidiary, GTC Real Estate, and is said by Kardan to have a book value of €194 million against the €160 million Lone Star has agreed to pay.
GTC itself is a Warsaw-listed property company and was founded by Kardan in the early 1990s. It was taken public in 2004 on the Warsaw Stock Exchange, and Lone Star has agreed to pay a price 1.4 percent above the company's average share price of the last three months.
The sale to Lone Star will generate enough to repay a €100 million loan that was secured against shares in GTC.
Shouky Oren, chief executive office of Kardan, which is being advised by Citigroup Global Markets, said: “We finalized a long and complicated competitive process in a challenging market. Selling the stake in GTC is a major step for Kardan in addressing our liquidity situation successfully.”
Closing of the transaction is expected imminently, and according to a statement, Lone Star will twice have the right to “claw back” €3.15 million should GTC fail to meet certain targets by 31 March 2015 and then by 31 December 2015 as part of the deal structure.
Lone Star declined to comment, but Kardaan's Oren continued: “Taking the decision to sell our stake in GTC is a natural step in the strategy of Kardan, which is to initiate, develop and manage assets and then to exit. Kardan will continue to focus on real estate and water infrastructure activities in promising emerging markets with a markedly higher growth expectation than that of the developed markets.”
Lone Star Real Estate Fund III is comprised of a US-registered fund and one registered in Bermuda, and held final closings last month on approximately $7 billion in combined capital commitments. Transactions consummated and targeted by Lone Star Real Estate Fund III include investments in distressed commercial real estate debt and equity products in the Americas, Western Europe and Japan.
As PERE reported last month, Lone Star wrapped up fundraising for Fund III in just over four months. Limited partners in the fund include the Teacher Retirement System of Texas and Oregon Public Employees Retirement Fund, both of which committed $300 million last month; South Dakota Investment Council, which has earmarked $150 million; Texas County & District Retirement System, which has agreed to invest $50 million; and Dallas Police & Fire Pension System, which committed $25 million. Separate from the $6.6 billion raised from third-party investors, additional commitments have come from Grayken, who has committed $330 million of his own money to the fund, along with employees of Hudson Advisors, its in-house servicing affiliate, which brought total equity to approximately $7 billion.