Warburg heads south

Global private equity firm Warburg Pincus is teaming up with Spanish private equity firm GED to back a newly created property development company that will invest in property in Southeastern Europe.

The new joint venture will initially have capital of €50 million ($61 million) to develop real estate projects in South-Eastern Europe in a wide range of sectors including industrial estates, offices, shopping malls and residential housing.

“The real estate market in Romania has seen a boom in land prices over the last two years,” explains Robert Luke, the managing director of GED in Bucharest. “In parallel there's been a lot of institutional money raised to invest in developed real estate projects. The problem is that there aren't sufficient developments to meet that demand. So we're creating a company to develop those projects.”

Andrew Stear and Teodor Pop, two businessmen based in Romania, the region's largest market, will be the managing partners of the joint venture. Stear is a British developer who previously joined forces with GED to create the Iride Business Park, a giant office and industrial complex on the northern outskirts of Bucharest and one of the largest property developments yet seen in the country.

The JV comes as real estate investors such as GE Commercial Finance Real Estate and Boston's MIL Equity Partners look towards Southeastern Europe, hoping to score some of the high yields that were, until recently, available in the markets of Central Europe. Romania and Bulgaria have a combined population of 30 million and economic growth far higher than the European average. Both are expected to join the European Union in 2007, and therefore present significant opportunities for developers as they update their infrastructure. “People have seen the progress in the real estate markets of Central Europe, and can see the pre-accession countries going down the same path,” says Luke.

GED has significant experience in Southeastern Europe. The firm has offices in Bucharest and Sofia and is currently in the final stages of raising its second regional fund, GED Eastern Fund II, which is expected to close in April with commitments of €100 million.

Warburg Pincus is also no stranger to emerging markets: last November it invested $31 million in Chinese property development firm Raycom. The firm has also significantly grown its real estate business over the last year, increasing the size of its property investment team to 10 professionals. Last August the firm closed Warburg Pincus Private Equity IX on $8 billion.

MSREF acquires RBS portfolio
Morgan Stanley Real Estate Funds (MSREF) has acquired a property portfolio developed by the UK's Royal Bank of Scotland. The developments, which are expected to be worth close to £1 billion (€1.5 billion; $1.8 billion) when completed, were reportedly sold for around £270 million. The portfolio, which consists of 20 city center sites in the UK and one in Ireland, will be owned by MSREF V, an opportunistic vehicle that closed on $4.3 billion last year. RBS acquired most of the portfolio during its takeover of NatWest in 2000. Its 10-man development team, led by John Wallace, will now transfer to MSREF.

Carlyle and Skelton in second joint venture
Private equity giant The Carlyle Group has teamed up with property investment and development company Skelton Group to make a second joint acquisition, a Victorian office building in the Mayfair area of London's West End. The investors intend to redevelop the block to provide more grade-A office space and hope that, once fully leased, the investment will be worth £55 million (€80 million; $97 million). Last October the two groups jointly acquired an office building close to London's Waterloo station that they hope to redevelop as a hotel worth £65 million.

Blackstone may float care homes
Private equity group Blackstone is considering a flotation of Southern Cross, its £1.5 billion (€2.2 billion; $2.6 billion) care homes business. Blackstone acquired the company from West Private Equity in 2004 for £162 million and has since used it as a platform for a buy-and-build strategy, acquiring rival companies NHP for £563.5 million the following November and Ashbourne for £85 million last autumn. The firm is hoping to raise funds for further expansion by floating the company's operating business, which is expected to be valued at between £350 million and £500 million.

Fortress notches largest German commercial deal of 2005
Eurocastle Investment, a vehicle managed by US private equity group Fortress Investments, has paid approximately €2 billion ($2.4 billion) to acquire a German commercial property portfolio from Dresdner Bank. The portfolio consists of 303 properties, the majority of which are in Germany's “big five” cities and 80 percent of which are occupied by Dresdner. Fortress has been an active player in the German market, and in July 2004 acquired the 48,000 unit GAGFAH Housing portfolio for €3.5 billion.

Lehman buys in Sweden
Lehman Brothers Real Estate Partners and NEB Partners, a company recently formed by two former senior Lehman executives, have formed a joint venture to acquire Swedish property company Linco Fastighets. The value of the deal was not disclosed. Linco is a privately owned company that owns four office buildings in Stockholm. The joint venture's backers described the city as a key strategic investment area.