Kennedy Wilson Europe and Deutsche Bank have won the nominally-valued €360m Lloyds Banking Group’s Project Prince Irish commercial property non-performing loan portfolio paying around €61m reflecting an 83% blended discount, CoStar News can reveal.
The joint venture equity bidders paid around 17 cents in the euro for the NPL in a cash-only deal, reflecting both an entirely absent senior debt market for Irish commercial property, save for vendor financing, and the relatively small ticket size of the deal.
Project Prince is comprised of predominantly regional secondary Irish offices and retail secured loans, with circa 150 loans, including B notes and capex facilities; around 100 properties from 25 borrowers. All of the loans are in default and many of them are past due.
These variables, along with an incredibly thin to non-existent investment market, account for the severity of the discount.
Kennedy Wilson and Deutsche Bank beat competition from Varde Partners, the hedge fund, and Cerberus Capital Management. Forum Partners also bid in earlier stages but dropped out of the race.
The portfolio will be worked out over a seven-year period, with an asset by asset business plan reflecting a different timeline for each underlying property. Some of the loans will be enforced and properties sold immediately, some properties will require refurbishment before selling, and others will be repositioned in their markets with potential change of usage.
Kennedy Wilson will be responsible for all asset management, while Deutsche Bank is exclusively an equity investor in the deal.
An evidently wafer thin investment market in Ireland could see a trickle of stock available, with some of Real Estate Opportunities’ circa €300m securitised 16-strong Dublin retail and office property portfolio likely to come to market next January.
Allied Irish Bank currently has a much larger Irish property loan portfolio in the market, the nominally-valued €645m Project Kildare as reported by the Financial Times, while Lloyds still has as much as £10bn in gross Ireland property loans and is expected to sell another loan portfolio in due course, market conditions permitting.
The extent of Lloyds’ Irish property exposure headache is considerable: gross property loans to Ireland at the end of last year were £10.9bn, split 54% in property investment and 46% in development. The £5.0bn development book is 99% impaired, while the £5.9bn investment book is 84% impaired.
But there are palpable fears that a very thin investor base for deeply distressed Irish property and loans could evaporate.
Tensions are rising across the eurozone ahead of Greece’s General Election on 17 June which could feasibly precipitate the country’s exit from the single currency, which could prompt a dramatic retrenchment in real estate risk appetite not seen since the collapse of Lehman Brothers.
The ability for deleveraging banks to dispose of the unwanted Irish exposure may well be curtailed by the outcome of political events nearly 1,800 miles away.
All parties declined to comment.