Commerzbank AG (CRZBY)

[Enterprising Investor]

Lone Star, J.P. Morgan Near Purchase of Spanish Loans (5/21/14)

MADRID— Commerzbank AG is in final-stage talks to sell a multibillion-euro portfolio of Spanish real-estate loans and assets to Lone Star Funds and J.P. Morgan Chase, the latest showing of renewed interest in one of the most-battered property markets in Europe.

According to people familiar with the talks, the two U.S. investors will pay between €3.7 billion and €3.9 billion (between $5 billion and $5.3 billion) for the portfolio, which includes loans with a face value of about €4.5 billion that are backed by shopping centers, hotels and offices.

The deal, which one of the people said may close within a month, would be the largest property transaction in Spain since the country's real-estate bubble burst six years ago and illustrates foreign investors' renewed appetite for assets in the financially stressed euro-zone countries of Europe.

Under the terms of the proposed deal, known by the code name Project Octopus, Lone Star would acquire the majority of the loans in the portfolio, while J.P. Morgan will acquire a minority and provide the financing for the deal, one person said.

Demand for Spanish real-estate loans and assets has recovered dramatically over the past year, as investors grow more confident that the worst of the financial crisis has passed. There were $1.5 billion worth of commercial real-estate transactions in Spain in the first quarter of 2014, up from $410.9 million during the same period last year, according to data from Real Capital Analytics.

The sheer size of Project Octopus could help transaction volumes keep rising, as Lone Star sells and restructures parts of the loan book, said Federico Montero, a partner in corporate finance at real-estate broker Cushman & Wakefield. "The good news is that you have a private equity investor with these loans now," he said. "Things will move faster than they were with a German bank."

The auction, run by investment bank Lazard Ltd., initially attracted more than a dozen large international investors, many of which had teamed up with financial institutions to bid.

Blackstone Group LP, Cerberus Capital Management and Apollo Global Management were leading three of the four consortia in the final stages of the Project Octopus bidding. U.S. private-equity funds have helped drive the activity in Spain, as well as in Ireland and Italy, as they search for distressed real-estate assets.

The loans were originally extended by Eurohypo AG, a unit of Commerzbank that is being wound down after suffering large losses in recent years.

The proposed deal would be structured in a similar way to the sale of Commerzbank's £4 billion ($6.73 billion) U.K. real estate portfolio last year, people familiar with the talks said. Loan Star bought the U.K. portfolio together with Wells Fargo & Co.

The next closely watched portfolio sale in Spain is Project Hercules, a €6.95 billion portfolio of mostly residential mortgages. The loans are held by Catalunya Banc SA, a once-prominent regional lender that was nationalized in 2011.

Investors are also circling Realia SA, a troubled builder that is cleaning up its balance sheet and looking for funds willing to inject money into the company. In a deal announced Tuesday, Realia said it had agreed to sell a majority stake in SIIC de Paris to France's Eurosic SA for €558.9 million. Realia's two largest shareholders, and Fomento de Construcciones y Contratas SA, are working with Goldman Sachs to find a buyer for their stakes in the company.

http://online.wsj.com/news/articles/SB10001424052702304198504579573401186089522?mod=WSJ_qtoverview_wsjlatest&mg=reno64-wsj