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Germany to Sell Real Estate to Lone Star for $1.4 Billion

December 12, 2012

Germany Sells Commercial Buildings to Lone Star for $1.4 Billion

TLG Immobilien manages buildings ranging from a Porsche showroom in Dresden to a factory in Chemnitz. Photographer: Carsten Koall/Getty Images

The German government agreed to sell TLG Immobilien, a company that owns about 800 buildings in the country’s eastern states, to Lone Star (LSTG:US) Funds for 1.1 billion euros ($1.4 billion) including debt. It’s the country’s biggest commercial-property deal of the year.

Lone Star, a private equity firm based in Dallas, will acquire TLG Immobilien’s stores, offices, warehouses and hotels, the Berlin-based Finance Ministry said today in a statement. Lone Star will pay 594 million euros in cash and assume about 500 million euros of debt, a government official said.

Chancellor Angela Merkel’s government, in an effort to reduce its budget deficit, is taking advantage of an increase in German property prices fueled in part by low interest rates and a lack of investment alternatives. Last month, it agreed to sell the residential arm of TLG Group, the real-estate management company that includes TLG Immobilien, to Hamburg-based TAG Immobilien AG (TEG) for 215 million euros.

“From the government’s perspective, the current market situation was ideal for the sale of the TLG Group,” Finance Minister Wolfgang Schaeuble said in the statement.

Former Brewery

TLG Immobilien manages buildings ranging from a Porsche showroom in Dresden to a factory in Chemnitz and the Kulturbrauerei, a former brewery in east Berlin that was converted into restaurants, bars and music venues. The company was valued at 1.4 billion euros in the sales prospectus.

TLG “has attractive properties in good locations, most of which were acquired or developed in the past 10 years,” Alexander Hesse, managing director of Lone Star’s German business, said in a statement today. The assets will be managed by Lone Star’s Real Estate Fund II, the firm said.

TLG Group replaced Treuhand Gesellschaft, the company that oversaw the sale and restructuring of thousands of companies after the collapse of communist East Germany and the 1990 reunification. The government shelved a plan to sell TLG in 2008 because of the global financial crisis.

Foreign investors are buying German real estate as investment opportunities in other countries that use the euro dwindle amid low interest rates and economic weakness in countries such as Spain and Portugal.

In April, Lone Star agreed to buy property loans formerly held by the German arm of now defunct Lehman Brothers Holdings Inc. from the Bundesbank. Those loans had a nominal value of 1.4 billion euros, the German central bank said.

Budget Deficit

The German government targets a deficit of 17.5 billion euros in 2013 compared with 25 billion euros this year. The sale of TLG’s two units will generate net proceeds of 812 million euros, which will be added to the 2013 federal budget, according to the government official.

Barclays Plc (BARC) advised the government on the transaction.

Blackstone Group LP (BX:US), Morgan Stanley (MS:US) and Cerberus Capital Management also bid for TLG Immobilien, according to people with knowledge with the auction.

Lone Star was chosen because it offered a high price and obtained financing in advance, the government official said. The private equity firm said it will keep TLG Immobilien intact instead of selling its assets, he said. The German company employs 200 people.

The federal government plans to sell more real estate including its shares in the Berlin Brandenburg, Cologne and Munich airports.

To contact the reporter on this story: Dalia Fahmy in Berlin at dfahmy1@bloomberg.net.

To contact the editor responsible for this story: Andrew Blackman at ablackman@bloomberg.net.


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