Credit Suisse First Boston

CSFB has strengthened its European real estate investment banking arm with the acquisition of US investment bank DLJ and work on corporate outsourcing deals Just over two years ago, Credit Suisse First Boston (CSFB) decided to expand its European real estate investment banking operations. The ball was set rolling when Ian Marcus, Gary Wilder and Derek Vago joined CSFB from Deutsche Bank in 1999 to establish a pan-European presence in real estate investment banking. The unit’s initial brief was to advise real estate firms on mergers and acquisitions, corporate broking, and debt and equity capital. “It took us about 15 months to get established,” recalls Ian Marcus, co-head of real estate investment banking at CSFB. “In that time, apart from doing a good deal of traditional advisory work, we also made equity investments to the value of around $60m.” One of the first deals was to take a 11% equity stake in Shurgard Storage Centres, a US self storage specialist. CSFB also underwrote €255m of debt to fund the company’s European expansion plans. In 2000, the bank advised many UK property companies which went private, including Burford, Dencora, Prestbury and Bourne End. More recently, it has focused on helping public and private sector concerns convert real estate into more liquid assets. “We estimate that around $20bn [of real estate] has been transferred from corporate to financial ownership last year,” says Marcus. In this area, CSFB has arranged the sale and leaseback of 180 petrol stations to London & Regional, raising £300m for Shell UK, acted for Kingfisher on the sale and leaseback of 180 Woolworth stores, and advised Conoco on the £60m sale of its UK petrol stations. The bank is now acting for ABB in the disposal of its Swedish assets. CSFB offers a wide range of options for spinning off or outsourcing corporate real estate. “We try to tailor solutions to the needs of the individual company,” says Marcus. “For some, this may be a sale and leaseback, while others use structured finance or securitisation. Sometimes it can involve finding a joint venture partner.” CSFB’s primary geographic focus is western Europe. Outside its home base of the UK, it has been active in Spain, France and Switzerland – where it advised Swiss Prime Site, which is controlled by Credit Suisse Asset Management (now part of CSFB) – and Benelux, where it advised Cofinimmo on its acquisition of the Primaedis portfolio from AXA Royale Belge. As part of this, CSFB underwrote a €405m acquisition loan and led the first Belgian rental securitisation to refinance the initial bridging loan. The Italian and German markets hold great potential for real estate investment banking services, but gaining a foothold can be an uphill struggle, says Marcus: “In Germany we face a highly competitive landscape, and it has taken time for companies to realise the benefits of converting their real estate holdings into money. However, changes in tax legislation will go some way to help this process.” CSFB is also active in real estate securitisation through its Principal Finance Group, which structured and led the Cofinimmo securitisation, and took a leading role in the recent £875m Canary Wharf securitisation. CSFB’s property activities were boosted in late 2000 when it acquired US investment bank Donaldson Lufkin & Jenrette (DLJ). While DLJ did not run a real estate investment banking unit, the deal did give CSFB two property related businesses: opportunity fund Real Estate Capital Partners (RECP), and the Real Estate Private Funds group. CSFB’s activities in the direct equity real estate investment market are now focused through RECP, a group of global real estate funds overseen by managing partners Barry Sholem, Andy Rivkin and Andrew Kassoy. Based in London, Kassoy oversees the non-US, international business, which is active in Europe and Asia, and provides a number of spin-off opportunities for the investment banking business. RECP’s European arm, run by Scott O’Donnell, has total equity of $1.9bn, which is being invested at three different levels: single-asset acquisitions, portfolios of real estate assets, and distressed loans secured by real estate and operating companies. One of these investments is a controlling 20% stake in MWB Business Exchange, MWB Group’s serviced office subsidiary. RECP has also formed a development joint venture with US-based Sunrise Assisted Living to develop assisted living facilities in the UK. Other RECP investments include the landmark Maremagnum retail and leisure scheme in Barcelona and a number of commercial and residential properties in Paris. The fund, which has invested in the UK, Germany, France, Spain, Italy, Belgium and the Netherlands, still has several hundreds of millions to invest and is focusing on western Europe. Meanwhile, The Real Estate Private Funds Group, the other property operation CSFB acquired along with DLJ, raises equity for venture capital houses, buy-out funds and similar institutions. DLJ had been active in this business in the US for many years, and in 1999 set up a separate real estate team to raise capital for opportunity funds and other real estate sponsors in the US and Europe. The team has so far helped raise over $17bn for this purpose. The group has built up a network of contacts with a variety of equity sources, including corporate and public pension plans, insurance companies, banks, foundations, endowments and high net worth investors. The team’s fund raising activities include work for Soros’s $1bn European Real Estate Fund, Blackstone’s European Funds, and Doughty Hanson’s Real Estate European Fund. The real challenge for the Real Estate Private Funds Group is to look beyond US sponsors and identify either country- specific or sector-specific sponsors, then raise capital for them from around the globe. Such vehicles provide an exit strategy for property companies after they have created a stabilised asset base, with the assets made available to institutional capital. “As more and more listed companies recognise the need to use their capital more dynamically, we will see more of these vehicles,” predicts Fredrick Elwing, head of Real Estate Private Equity Funds Group in London. “At the same time, property companies will continue to manage the real estate assets, thus generating fee income. The capital that is freed up can be returned to shareholders or reinvested in developments or active management.” CSFB’s activities in these type of transactions include advising Pillar on the £373m acquisition of Wates City of London, while also underwriting £405m of debt for the bid, which formed the basis of Pillar’s establishment of CLOUT (City of London Office Unit Trust). CSFB also advised Capital & Regional when it set up two limited partnerships with Morley Fund Management. The first, Junction, owns a number of UK retail parks, while the second, The Mall, is a specialist shopping centre investment vehicle. These ventures control assets worth just short of £1bn. Other CSFB clients, such as Grantchester and Rugby Estates, have created similar co-investment vehicles. Marcus believes that indirect instruments occupy an important place in the portfolio for real estate investors. “While the big institutions may want direct exposure to the market, the small or medium-sized institutions find it very difficult to own larger assets such as shopping centres or city-centre office blocks. By taking a stake in such vehicles, these investors can obtain some exposure to these asset classes. They are also buying into the best management in each sector.” CSFB now aims to transfer its know-how as a market maker and clearing house for UK property unit trusts to other areas, such as making a market in limited partnerships and other co-investment vehicles, bringing liquidity to this area. CSFB Credit Suisse First Boston One Cabot Square London E14 4QJ Tel 44 20 7888 8888 Fax 44 20 7888 1600 Selected Credit Suisse First Boston property transactions 2001/2000 CSFB was involved in several public-to-private transactions, including the Burford deal Year Client Transaction CSFB role Value £m 2001 Kingfisher Sale and leaseback of 182 high-street shops Financial adviser 614 Pillar Properties Acquisition by Wates City of London Financial adviser/broker 373 Ascott Group Formation of UK serviced apartment joint venture Financial adviser 140 Salmon Harvester Refinancing of joint venture Financial adviser 85 Conoco Sale and leaseback of service stations Financial adviser 60 2000 Burford Acquisition by Thayer Estates Financial adviser and broker 489 Cofinimmo Debt financing for Primaedis Underwriter and arranger 405 Selected Credit Suisse First Boston property transactions 2000 CSFB also makes its own investments, such as the Interxion deal Year Client Transaction CSFB role Value £m 2000 Rodamco UK Acquisition of Scottish Metropolitan Financial adviser/broker 153 LVMH Acquisition of La Samaritaine Financial adviser 150 Grantchester Reduction in capital broker 140 London & Regional Acquisition 60 Victoria Embankment Place Adviser/debt structure work 135 Minerva Acquisition by Criterion Developments Financial adviser/broker 101 Prestbury Controlled liquidation Financial adviser/broker 90 Dencora Acquisition by Knowle Hill Properties Financial adviser/broker 74 Minerva Rights issue Broker 73 Bourne End Acquisition by BEP Acquisitions Financial adviser/broker 42 Interxion Direct equity investments Investor 23 Source: CSFB