Friday 23 February 2018

Lone Star set to cash in on billion euro property firm

POISED: John P Grayken, managing partner at Lone Star Funds, who plan to sell TLG Immobilien
POISED: John P Grayken, managing partner at Lone Star Funds, who plan to sell TLG Immobilien
Peter Flanagan

Peter Flanagan

LONE Star Funds plans to sell TLG Immobilien, the German property company it bought for €1.1billion last year, in an initial public offering, in a move which may be seen as a template for how the company will eventually cash in its Irish property portfolio.

The sale of shares in Berlin-based TLG will take place as early as the second half of this year, it has been reported.

Lone Star, the Dallas-based private equity firm, has yet to hire banks to manage the IPO.

Lone Star has been one of the biggest buyers of debt held against Irish property assets in the last year.

In February the US firm, which specialises in distressed assets, won the entire two-tranche Project Salt and 12 of the 14-tranche Project Rock legacy IBRC commercial property loan books with a combined par value of just over €7billion.

Lone Star is understood to have paid between 65pc and 70pc of the par value of those loans.

Most recently, it bid more than €1billion for a portfolio of loans tied to developer Michael O'Flynn.

Lone Star was ultimately outbid by American rival Blackstone for those assets.

The size of Lone Star's assets in Ireland has led to speculation as to how the firm plans to eventually dispose of them once the timing is right.

The firm, for whom John P Grayken works, is known for being one of the first investors to buy when others are selling. But it does not traditionally hold assets for more than a few years.

While it is not expected to set up a real estate investment trust at this stage, an IPO of some description could still happen.

A spokesman for Lone Star and a spokeswoman for TLG declined to comment on speculation.

Owners of German real estate are using IPOs to take advantage of investor demand as property values continue to rise.

An index of German property stocks has gained 11.4pc this year compared with 0.2pc on the German benchmark DAX index.

Last year, Goldman Sachs and private equity firm Terra Firma Capital Partners sold shares in two German residential landlords.

Cerberus Capital Management plans to sell shares in a German retail property portfolio that is valued at about €2billion.

TLG Immobilien managed about 800 offices, warehouses and hotels across eastern Germany when Lone Star bought the company.

Its assets include the Hotel de Saxe in Dresden, an office building in Rostock and the Kulturbrauerei, which is a former brewery in east Berlin that was converted into restaurants, bars and music venues, according to TLG's website.

The company declined to reveal exactly how many properties were currently in its portfolio.

Lone Star bought TLG for its Real Estate Fund II for about €594m in cash and €504m of assumed debt.

TLG replaced Treuhand Gesellschaft, the German company that oversaw the restructuring and sale of thousands of companies after the collapse of communist East Germany and the 1990 reunification.

Sunday Indo Business

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