TPG, Patron achieve opportunistic returns on Merin exit

The two private equity firms bought the Dutch office platform for a reported €370m in 2012.

TPG and Patron Capital have sold a Dutch office portfolio for €622 million, achieving opportunistic-style returns in the process.

Canadian REIT Dream Global bought around 135 of the 202 office assets in the Merin portfolio, one of the largest real estate platforms in the Netherlands, with the remainder either sold by San Francisco-based TPG and London-based Patron or retained and contracted to a third party.

Neither TPG nor Patron were available for comment on the portfolio’s original performance targets or achieved return.

However, according to market sources, PERE understands that the pair set out to deliver opportunistic returns for their investors, and was successful in doing so. Typically, core investments are expected to produce returns in the single digit percentages, value-added investments produce returns in the high teens, while opportunistic returns tend to be above 20 percent.

Dream Global has traditionally invested in Germany and Austria, and the Merin transaction represents the firm’s first deal in the Netherlands.

TPG and Patron acquired the business formerly known as Uni-Invest in 2012 in a reported €370 million deal that represented the first restructuring of a defaulted European commercial mortgage-backed securitization. It had previously been taken private by a consortium including Lehman Brothers in 2002.

TPG and Patron have been credited with transforming Merin’s fortunes, overhauling its management structure, which saw around 80 percent of the previous hierarchy moved on. This was followed by the hire of Bas van Holten as chief executive. Van Holten focused on transactions and improving Merin’s tenant/landlord relationships.

PERE understands the platform completed around 50 acquisitions and disposals during TPG/Patron’s ownership, while also improving its tenant renewal rate from 50 percent, at the time of purchase, to around 80 percent today.

“Over the last five years, we have worked successfully with our partner, TPG, and the new Merin management team to transform the business into one of the leading real estate investment companies in the Netherlands,” said Keith Breslauer, managing director and senior partner at Patron.

TPG partner Anand Tejani said the partnership saw an opportunity to “fix and rebuild” a broken platform with the aim of eventually attracting institutional investors – a strategy reminiscent of its ownership and sale of P3 Logistic Parks in late 2016.

“Merin had been operating in distress for a couple of years with a broken balance sheet. It was difficult for the previous owners to maintain the real estate or the talent in the organization,” said Tejani.

“One of the things that we have tried to do, which is a little bit different from the usual private equity route, is to blend the real estate and corporate skill sets. Improve the assets, build the company and, hopefully, if you are successful, then not only do you have a better real estate portfolio, but also a platform that attracts institutional interest. As we did with P3, we were able to substantially grow and improve the platform.”

In November, TPG sold pan-European logistics business P3 Logistics Parks to Singaporean sovereign wealth fund GIC Private for €2.4 billion, one of the largest deals in the region last year. The firm’s original vision was to create a €2.5 billion business in five years. The platform was eventually sold in just three.