US fund manager relinquishes keys to €2.1bn portfolio of German assets
Morgan Stanley has given back the keys to the Pegasus portfolio, landing Royal Bank of Scotland with a €2.1bn portfolio of German assets.
Last summer, the parties became embroiled in a battle over the portfolio, with Morgan Stanley’s fund manager, MSREF, threatening to hand back the keys or manage the assets for a fee (EuroProperty 03.08.2009).
A filing to the German anti-trust authorities last October confirms that RBS Real Estate now owns a majority stake in MSREF Pegasus Holding.
Meanwhile, the Scottish bank pays Morgan Stanley’s asset manager, Argoneo, a fee to look after the properties, a person familiar with the situation told EuroProperty. RBS works with a skeleton staff in Frankfurt as it winds down the German business.
Morgan Stanley originally bought the Pegasus portfolio from Union Investment, previously Difa, with €1.9bn of debt on an interest cover below 1x from RBS in May 2007.
In order to increase the interest cover ratio, which reflects a company’s ability to pay interest on debt, MSREF was to lease the vacant space within the portfolio and sell some of the assets.
However, market conditions made it impossible to sell assets while deterioration in the occupational sector caused the leasing situation to worsen.
At one point, Morgan Stanley proposed to buy back the loan, of which some of the junior paper was syndicated to other banks, from RBS for €1bn, on the premise that RBS left some debt in place. However, a deal could not be agreed.
Most of the 28 assets in the portfolio are located in the Rhine-Main and Berlin areas. Morgan Stanley paid €1.4bn for the portfolio and a further €703m for the Frankfurter Welle building in Frankfurt, paying Union Investment a total of €2.1bn.
