Henderson Group Plc’s Caspar Property Fund sold its real estate to two buyout firms to repay about 167 million pounds ($265 million) of commercial mortgage-backed securities.
Mountgrange Investment Management LLP and Patron Capital Ltd. agreed to buy the fund’s 24 remaining buildings for 184 million pounds, according to a statement today. The proceeds will pay off CMBS sold in 2004 by Epic (Caspar) Plc.
“As a complex, distressed deal with potential to add value through creativity and active asset management, this opportunity fits our investment criteria perfectly,” Patron Capital Managing Partner Keith Breslauer said in the statement.
Henderson has been selling the Caspar fund’s real estate as its high level of leverage compounded the effect of a slide in U.K. property prices. The asset manager hired Drivers Jonas Deloitte LLP in April to sell the last 24 buildings, comprising offices, stores and warehouses, in a single transaction. Mountgrange said it was chosen as the preferred bidder from about a dozen offers for the properties.
The Caspar fund bought 61 properties in 2004 and financed the transaction with CMBS. The bonds and mezzanine loans totaled about 600 million pounds, more than 80 percent of the estimated value of the properties at the time of the bond sale, according to the 2004 securitized-loan prospectus.
The transaction “means we are able to return equity to investors,” said Martin Payne, the fund’s manager. The property slump in 2008 to 2009 caused debt to rise to as much as 109 percent of the value of the fund’s real estate, he said.
Prior to today’s sale announcement, the Henderson fund had raised 469 million pounds from asset sales. Senior bondholders are set to vote tomorrow on an extension of debt that matured Oct. 30, which was originally scheduled to give Henderson time to sell the properties.
Most of the properties sold to the venture between Mountgrange and Patron Capital are in London and southeast England. Patron is investing through its 3 billion-euro ($3.8 billion) Patron Capital LP IV fund, which it set up to purchase distressed real estate in Europe.
The Mountgrange-Patron venture has raised about 94 million pounds from the sale of nine of the properties to three asset management companies. The buyout firms plan to cut vacancies at the remaining 15 buildings, potentially lifting the rental income return to as much as 11 percent of the purchase price from a current 8.7 percent.
“Many of the sites have been investment-constrained, so, with our combined expertise, we see plenty of scope to increase returns,” Mountgrange Senior Partner Manish Chande said in the statement.
Mountgrange’s investment was made by its Real Estate Opportunity Fund, for which it raised about 300 million pounds from investors in 2009.