Private equity giant Blackstone has finally persuaded Bonn-based real estate firm IVG to sell its German office portfolio, for a sum close to its original €3.3 billion initial public offering valuation – making it the largest property transaction in Europe this year.
The saga has taken a number of twists and turns over the past several months, with IVG initially seeking an IPO, rejecting a sizeable Blackstone bid, then stalling its own flotation before finally accepting a higher offer from the New York-based firm. By choosing to go with Blackstone, IVG has seemingly forgone the incremental benefit of selling shares in the company for a one-off sale.
The story began in July, when IVG spun off its 97-strong office portfolio – which includes The Squaire in Frankfurt – into OfficeFirst Immobilien in order to attract potential investment, primarily favoring a flotation. Its plans were initially well-received by investors and investment banks alike. The firm was reportedly aiming to sell around €450 million worth of shares in the business at the initial offering, with a view to converting the company into a real estate investment trust to trade on the Frankfurt Stock Exchange.
Then, in September, Blackstone began to circle and it made a €3 billion bid for OfficeFirst using capital from its latest opportunistic fund, Blackstone Real Estate Partners Europe IV, due to perceived “near-term re-leasing challenges” with the OfficeFirst assets, said one familiar source. But its overtures were rejected by IVG which, at the time, favored pursuing public over private capital for an exit of its office portfolio.
By October, an IPO looked improbable after concerns were raised by investors about European Central Bank monetary policy and a US Federal Reserve base rate increase. As a result, OfficeFirst’s flotation was postponed, chief executive Michael Jaski stating: “We have to recognize that the market environment has become so much bleaker in the last few days that a fair price would currently be hard to attain.”
The deal was recognized as a yardstick by which to measure institutional appetite for German real estate, but one London-based lawyer said it was inevitable Blackstone would come back with a better offer. “Once IVG delayed its IPO, it was highly likely Blackstone would return with a higher bid. The only question was how close to IVG’s valuation Blackstone would have to bid. Closer than many expected, as it turned out,” the lawyer said.
Incidentally, Blackstone considered an $11 billion IPO of its European logistics business, Logicor, this year. While in 2014, it also attempted to float its US logistics business IndCor, eventually selling it privately for $8.1 billion.