Guy Hands’ Terra Firma Capital Partners is lining up backers for its bid for Network Rail’s £1.5bn Arches portfolio.
The private equity investor is in talks with both Henderson Park and Partners Group to fund the prospective purchase.
Partners Group, the $78bn Swiss investor, is a long-standing investor alongside Terra Firma and in its funds, as well as those of other private equity real estate managers. It has traditionally been a limited partner into third-party funds but is increasingly investing in direct property and is currently developing the 240,000 sq ft 80 Fenchurch Street, EC3, with YardNine.
For Henderson Park, the firm founded by former Mount Kellett and Goldman Sachs executive Nick Weber, a deal for the Arches would be the latest in a dramatic buying run since the firm was established two years ago with backing from Stone Point Capital, Kuwait Investment Authority and Wafra Investment Advisory Group. It is establishing itself as a force in the hotels, PRS and London offices markets, with its latest deal the ongoing £90m purchase of 1-5 London Wall Buildings, EC2, from the City of London Corporation.
It is expected that Hands will also contribute equity to any deal. Terra Firma began a process to raise a new $3.4bn (£2.6bn) fund last August, although no closing has been announced. It is the firm’s first since before the financial crisis, with Hands having enlisted a new team including vice-chairman and head of portfolio Justin King, the former chief executive of Sainsbury’s.
It is expected that any ultimate buyer in the process codenamed Project Condor will utilise debt financing of around 70%, but the preferred party will still likely require at least £400m of equity.
No final agreement has been made between any of the parties to fund the Terra Firma bid, but fully financed final offers for the portfolio are to be submitted on 17 August. A preferred bidder is expected to be picked around the start of September.
Terra Firma is facing competition to buy the 5,476-asset collection from CK Asset Holdings, Kildare Partners and Blackstone in partnership with Telereal Trillium.
See also: Surprise £1.5bn Arches portfolio shortlist revealed
Last week, Goldman Sachs and Wellcome Trust withdrew from the process, partly due to concerns relating to lobbying group Guardians of the Arches, which is protesting the sale on the grounds that the buyer will push up rents, but also as it was unlikely to register a bid at a level sufficient to succeed in acquiring it.
On 18 July, the protest group met with transport minister Jo Johnson and at the start of this week and claimed it had been agreed the process would be reconsidered, including possible individual asset sales to occupiers and local authorities, although no statement was made by Network Rail.
This in turn prompted Blackstone to reassess whether or not to submit a final-round bid for the portfolio.
However, it is understood that there is no consideration being given to cancelling the process in its current form and all parties involved on the sell side are in agreement to push forwards to a conclusion. As a result, it is likely that Blackstone will still make a final submission.
Rothschild is leading the sale of the Arches portfolio with JLL providing due diligence advice; CBRE is advising Terra Firma.
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