Orion Capital Managers has quietly made its first investment for its latest opportunity fund, Orion European Real Estate Fund III.
As the firm ties up remaining commitments to the €1 billion vehicle, Orion has agreed to buy a 7.25 percent stake in French property company Societe Fonciere Lyonnaise (SFL) from Goldman Sachs. Orion is not commenting on the transaction, but PERE understands the firm is investing in debt in the company. Paris-based SFL, which has a market cap of €1.1 billion according to its share price at the time of press, owns predominantly office buildings in the Paris Central Business District.
Nicolas Reynaud, managing director of SFL and secretary to the board, told PERE Orion's deal to replace Goldman Sachs as shareholder marked one of Europe's first significant deals of 2009.
Reynaud said no official statement had been made on the value of the transaction, but French press reports suggest the fund acquired its stake as shares traded around €25 per share – their lowest value for 12 months. A 7.25 percent stake would be worth approximately €72 million given the firm's market cap.
He said Goldman Sachs did not have a representative on the board of the company. “We can imagine that Orion could ask for a position on the board, but so far that is not the case,” he said.
The property it has exposure to might be French, but the origin of the deal lies in Spain.
In 2004, Barcelona-based property company Inmobiliaria Colonial was part of the wave of companies eager to expand beyond Spain's overheated real estate market by snapping up French SIICs – the equivalent of US REITs.
Colonial paid €759 million, fully financed by debt, to take an 84 percent stake in SFL. However, Colonial found itself in difficulty when the Spanish property market crashed three years later. Further crushed by the credit crunch, last September the troubled company agreed to sell 33 percent in SFL to reduce its debt load.
However when that plan failed, four banks (Goldman Sachs, Eurohypo, Royal Bank of Scotland and Credit Agricole) exercised call options. Between December and January, almost half of Colonia's interests in SFL had been handed over to the banks. At the end of the January, Goldman Sachs sold its share onto Orion.
According to a statement on the Paris stock exchange, the shareholder base of SFL is now made up of Colonial with 53 percent, Group Credit Agricole with 13.98 percent, Eurohypo bank with 7.25 percent, Orion III with 7.25 percent, Royal Bank of Scotland with 7.25 percent and Spanish family firm REIG Capital Group with 4.38 percent with the remaining 6 percent free float.
SFL's Reynaud said the Paris market was still strong but the company is cautious for the near future. “Rents will probably slowly decrease in the next few months, but so far we have no problem such as oversupply. The issue is more the economic environment,” he said.