Rockspring buys distressed RBS assets

Rockspring, the property fund manager, has agreed to buy a portfolio of UK industrial properties from Royal Bank of Scotland in one of the first deals to take distressed assets from a UK lender.

Many property companies are talking to UK banks to try to either buy or form joint ventures for properties that have defaulted on loans, although few deals have been struck to date as the large banks have slowly sifted through loan books and established large workout teams.

This is expected to change next year as banks close on more properties where loans have defaulted, or where the borrowers are having difficulties in paying the interest owing to tenant problems.

RBS and Lloyds Banking Group, now carrying the former HBOS real estate loan book, account for close to half the £225bn of outstanding UK property loans. Much of this debt is in breach of covenants following the steep fall in values, or facing refinancing.

Rockspring has purchased a portfolio of 13 logistics and manufacturing units for £27m, reflecting a 13.5 per cent net initial yield, from RBS. The bank will provide a new debt facility amounting to about 60 per cent of the purchase price, with the remainder of equity from Rockspring’s Transeuropean IV fund.

Rockspring is working with IO Asset Management, a specialist industrial asset manager that will manage the portfolio. The portfolio includes vacant property that needs refurbishment.

Rockspring will be given a preferred return, which will mean any profits from an increase in income and value up to a pre-agreed hurdle rate. After this hurdle, any further profits are shared between Rockspring, RBS and IO.

There are expected to be more of this kind of deal in future, allowing the lending bank to recoup some of the loss from its loans by incentivising the new owner to drive value by refurbishing or renewing the tenancy. Great Portland Estates struck a deal with Eurohypo to develop two schemes in London this month, again sharing the returns with the bank.

Rockspring will also this week announce the first close of its UK value fund, having raised £152m.

The closed-ended fund, which has a final target equity raise of £400m, will also look to strike similar deals with banks on distressed portfolios.

There have been scores of investment vehicles raised in the past few months to buy property at yields below historic averages, competing with established property companies and funds that have billions in place to invest into the market.