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Lone Star Germany: Ravenous For Bad Debt

Workout veteran Lone Star is thriving by buying up Germany's troubled loans

The low-rise glass and steel building in Frankfurt where Lone Star Germany has its offices is partly empty, which is appropriate enough. Germany's troubled real estate market, with high office vacancy rates and stagnant housing prices, has been a disaster for banks such as Munich-based HVB Group or Bankgesellschaft Berlin. But it has been a bonanza for private equity firm Lone Star.

German banks offloaded bad loans with a face value estimated at $13 billion to $16 billion last year, and Lone Star was by far the biggest buyer, accounting for as much as two-thirds of the market. In one eye-popping deal last September, Lone Star acquired troubled loans with a face value of $4.8 billion from Hypo Real Estate Group, a spin-off of HVB Group. While Lone Star does not release financial information, it's obvious that with 200 employees, including sister company Hudson Advisors LLC, it has made Germany a major focus of operations. And Karsten von Köller, 65, a veteran German banker who postponed retirement to become chairman of Lone Star Germany last year, says the firm is hungry for more deals. "Our appetite is not yet sated," he says.