Northwood Investors has bought the out-of-the-money €85m junior loan securing the €270.41m-valued Dublin offices portfolio formerly owned by Treasury Holdings subsidiary Real Estate Opportunities from NAMA, CoStar News can reveal.
Northwood beat competition from a six-strong group of finalists including Apollo Global Management, Kennedy Wilson, TPG and Patron Capital.
NAMA has sold the junior loan, underneath the €375m Opera Finance (CMH) CMBS, for single digit cents in the euro, or a greater than 90% discount relative to the nominally outstanding €85m balance.
However, the loss to NAMA on the trade to Northwood Investors is likely to be negligible as Ireland’s bad bank would have acquired the junior loan at a fraction of its outstanding price from REO, given the visible lack of value back in the loan back in 2010.
The value in buying the junior loan for Northwood is tactical, rather than intrinsically monetary, as no meaningful restructuring or asset disposal could have been achieved without the consent of the junior lender.
Northwood effectively has a seat at the table for negotiations with bondholders and the special servicer, Eurohypo. Brookland Partners, which advised NAMA on the sale of the junior loan, is now believed to have been appointed by Northwood to advise the private equity investor on the restructuring dialogue.
While Northwood could look to capitalise on its junior loan ownership to try and take control of the underlying Dublin office portfolio, this is not the only investment play open, which could also include orchestrating a restructuring which could increase the tactical value of the junior loan, while drawing the interest due.
The Opera Finance (CMH) CMBS loan matures next Tuesday, with a legal final maturity for the notes in January 2015. The interest-only CMBS has the full €375m still outstanding, which puts the securitised LTV at 138.7%, and breaks the value in the four-tranche Opera Finance in the class Bs.
REO, the Jersey closed-ended investment fund which is 51%-owned by Treasury Holdings, last estimated the value of the predominantly retail and office Dublin portfolio at €291.5m as at 28 February 2011, which reflects a 42% capital depreciation since the original December 2005 valuation by DTZ Sherry Fitzgerald.
Since then Irish commercial property capital values have further declined while the market remains bereft of liquidity. In the four and a half years to the end of the first quarter 2012, Irish commercial property values have fallen by 67%, based on IPD’s quarterly Ireland Index.
REO financed the assembly of the 16-strong portfolio with a €425m whole loan provided by Eurohypo in late 2005.
This was then securitised in the €375m Opera Finance (CMH) CMBS in February 2006, with an additional €50m junior loan provided by the then-named Anglo Irish Bank, which was subsequently increased to €85m and transferred to NAMA upon Anglo’s state rescue.
Eurohypo, the servicer for the Opera Finance (CMH) securitised loan, appointed Cairn Capital, the real estate debt advisory specialist, last autumn as financial adviser to help assemble the bondholders of the five-tranche CMBS and begin a dialogue which is expected to lead to a managed sell-down of some of the more sellable assets in the 16-strong pool.
The underlying portfolio includes the one non-Dublin property, the 74,000 sq ft Merchant’s Quay Shopping Centre in Cork City Centre, anchored by Marks & Spencer. The five next largest assets are:
- The Bank of Ireland Asset Management-leased five-storey office building at 40/41 Mespil Road in Dublin, which also has a long lease, expiring in June 2028. Bank of Ireland’s asset management subsidiary was sold to Kennedy Wilson last year;
- Crescent Hall, the four-storey office building in Dublin’s Mount Street, has a lease expiry today – ECDL ICS Skills – while RegTel’s lease expires at the end of the year and a second lease for the remaining office space expires with an October 2013 break clause;
- The 145,000 sq ft Stillorgan Shopping Centre in Dublin, anchored by Tesco, which has a break clause in September 2016, as well as Bank of Ireland and Vodafone;
- The 59,950 sq ft South Bank House – next to Google’s headquarters in Grand Canal Docks –which is the headquarters for Mason Hayes and Curran.
- The Warehouse three-storey office property in Barrow Street, on a 25-year lease expiring in 2025, let to Treasury Holdings itself.
Northwood Investors was founded in 2006 by John Kukral, the former president and CEO of Blackstone Real Estate Advisors.
All parties declined to comment.