Project Deutschland: Unpeeling the Onion of a Distressed Real Estate Portfolio Case Study Solution
Introduction:
The Garrison LLC portfolio was the company that was acquiring the original portfolios which included high quality assets in different cities of Germany. When Garrison acquired the portfolio it was labeled as one of the best portfolios in Germany, which included buildings and hotels. For acquiring they had to take loan from bank of €1 billion and had to pay €1.3 billion for the whole portfolio. The portfolio’s debt amount was divided in three tranche A, B and C.In 2009, global crisis came and cash flows for the portfolio declined. When chances of portfolio’s default emerged Tiberius decided to acquire tranche B and C for €161 million. During 2011, portfolio failed to meet interest coverage ratio convention and they had to undergo restructuring phase to recover. The bank terminated the contract and acquired the tranche A again, and Tiberius was left with remaining tranche. Considering this situation as an opportunity veritas owners decided to look in the prospect of this portfolio to potentially acquire this.
How much should Veritas invest in the deal?
Veritas should invest a total of €971 million plus €15 million acquisition cost and €5 million breakup cost and finally 1.5% assignment fee to be paid to acquire the whole portfolio. They should invest €810 million in tranche A, which is its current face value and they should invest €161 million in tranche B and C which includes accrued interest and face amount that are currently acquired by Tiberius.
Should Veritas make an offer for the A tranche? If so, at what price?
Yes, Veritas should make an offer for the A tranche as future estimation made by Tiberius indicates that future economic conditions are in favor of this portfolio as GDP growth is also estimated to be on increasing side, and with that consumer spending will also increase. This shows that there are ample chances that portfolio will be profitable in the future as interest rate is also stable now. They should make an offer of €810 million for the A tranche as after the global crisis the portfolio was unable to follow interest coverage ratio convent and went through a restructuring process, which resulted in downfall of the face value of Portfolio.
Should Veritas make an offer for the B&C tranches? If so, at what price?
Yes, Veritas should make an offer for the B&C tranche, which is currently hold by Tiberius who was once the asset portfolio manager. Tiberius failed to exceed the expectations and also lost his position as Asset Portfolio Manager, which resulted in termination of contract as well. They should make an offer of €161 million for B&C tranche which includes face amount and accrued interest.
Should Veritas make an offer for equity? If so, at what price?
Yes, Veritas should make an offer for equity as this portfolio is of high quality assets and after the global economic crisis Germany’s economy is stabilized now. They are having a continuous growth in GDP and level of unemployment is also decreasing.Their investment market is also increasing which is in favor of this portfolio and Veritas can make a good deal out of this. Veritas should make an offer of €990 million for the equity which must include breakup cost, assignment fee and acquisition cost of €5 million, €14.5 million and €5 million respectively.
Should Veritas reinstate Tiberius to manage the properties?
Veritas should not reinstate Tiberius to manage the properties because of his past records, firstly because of his failed attempt to manage the portfolio and mis managements he did in this process. Secondly if he allows him to manage then he has to pay him the management fee that would be costly for Veritas and its shareholders. Other thing being, Veritas has joined hand with Broad gate Asset Management Company, which will help him in management decisions and he will be paid management fees. So, there is no point paying extra fee to Tiberius for the same services it is being provided by Broad gate.
Conclusion
After considering all the probable outcomes Veritas should acquire the whole equity for €990 million. As after global crisis the economic conditions in Germany are stable now and chances are bright for this portfolio to turnout as success. It will be a good decision for Veritas to avoid Tiberius as his past record shows that he is not the right man for the job and if they acquire his services they’ll have to pay him fees for consultancy, so it’s better to not involve him in process............
This is just a sample partical work. Please place the order on the website to get your own originally done case solution.
Related Case Solutions & Analyses:
Abraaj Capital
Technical Note on Equity-Linked Consideration Part 3: Cash-and-Stock Deals
Hotbank: Softbanks New Business Model for Early Stage Venture Incubation
Corona Beer
Genzyme Center (C)
HubSpot: Dharmesh Shah, Founder, Video
Keidanren: Foreign Political Contributions in Japan
The Marvel Way
The Ramsync Brief
