TPG Grabs Majority Stake in Deutsche Bank’s Loan Portfolio

 By Scott Baltic, Contributing Editor

Jim Sullivan, Green Street Advisors

TPG Real Estate’s acquisition of a 75 percent stake in a $2.5 billion portfolio of high-yield CRE loans from Deutsche Bank’s Special Situations Group is yet more evidence of the market’s recovering strength, said a real estate finance veteran.

The transaction also included the formation of a new mortgage REIT, TPG Real Estate Finance Trust (TRT), through which TPG owns its 75 percent share, while Deutsche Bank retains a 25 percent share. Relying on a group of institutional investors, the new REIT raised a total of more than $750 million in equity commitments, which will allow it to originate new loans to existing and new borrowers. In addition, TRT and Deutsche Bank’s Commercial Real Estate group reportedly expect to continue to work together on new business opportunities.

The portfolio consists of 57 performing first mortgage loans on properties in gateway markets across the United States, predominantly in New York and Los Angeles. The loans have a weighted average life of less than three years and an average size of about $40 million, and the property types include apartment, office, condominium, hotel and industrial assets.

These properties were described as “commercial real estate assets in transition that are not easily financed by traditional lenders.” That refers to assets such as office properties that are not fully leased or are being renovated, apartments that are being converted to condos and hotels that are being repositioned. These properties don’t have significant current cash flow and so don’t fit the criteria for traditional lenders, Commercial Property Executive has learned.

Deutsche Bank’s Special Situations Group invests in distressed commercial mortgages and other real estate debt instruments acquired in the secondary market from other financial institutions and non-bank lenders globally. As part of the loan portfolio sale, 11 origination and risk management personnel from the group will join TRT.

“We are very excited about this … opportunity to acquire the existing portfolio, as well as to expand the business as we grow the platform through new originations,” Avi Banyasz, TPG partner and co-head of TPG Real Estate, said in a release. “We are very fortunate to have the same strong Deutsche Bank team in place, which will provide continuity for current borrowers and open the door to relationships with the growing number of new borrowers in need of financing.”

“Commercial real estate operating fundamentals are strong, and large pools of capital are trying to find attractive investments,” Jim Sullivan, managing director of the Advisory & Consulting Group at Green Street Advisors, told CPE. “Sometimes that capital is investing directly in properties, and sometimes it is buying pools of loans secured by real estate. Finding the best risk-adjusted returns in a competitive arena is the goal of all real estate investors at this point in the cycle.”