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Private Equity Firms Start To Lose Control Of Big Shopping Centre Assets

The Eastgate centre in Gloucester

Lone Star has ceded control of a major UK shopping centre portfolio after a sharp fall in value, in a deal that highlights the problems facing private equity firms that bought into the retail sector in 2013 and 2014.

Control of the Tiger portfolio of five shopping centres across the UK has reverted to Austrian bank BAWAG, one of the mezzanine lenders to the assets, according to Debtwire.

It is the largest UK retail portfolio to come into the possession of a lender since the financial crisis. Ellandi, the company managing the portfolio on behalf of Lone Star, has been retained as asset manager.

Lone Star bought the Tiger portfolio from Rockspring for £260M in November 2014. At that point the portfolio comprised seven assets totalling 1.3M SF in Grays and Romford in Essex, Gloucester, Southampton, Gateshead, Falkirk and Aberdeen.

The deal was undertaken using a £200M loan from Citi, putting the loan to value at 75%. BAWAG took a senior mezzanine portion of the debt, with OZ Real Estate taking a junior mezzanine portion.

Lone Star has sold two of the centres in Grays and Gateshead, and was trying to sell the other five before the portfolio reverted to the lender. The fact that BAWAG is now controlling the centres implies the value has fallen by at least 25%.

Late 2014 was pretty much the worst time in the past decade to be buying secondary shopping centres: according to Real Capital Analytics it was the cyclical peak in terms of values for these assets, which flatlined until 2017 and have been falling ever since.

About 200 shopping centres with a nominal value of £7B have upcoming debt maturity issues that are piling pressure on their owners, mainly private equity firms, according to research from asset management firm APAM.