Max Property is frontrunner to buy 10m sq ft Industrious portfolio

07:51 | 02.07.09

The AIM-listed company is in advanced talks for an off-market purchase of around £250m from the receiver of Dunedin’s Industrious portfolio, Ernst & Young.

Max Property has made a predominantly cash offer for the industrial portfolio, just over a month after raising £210m from listing on AIM to take advantage of depressed property prices.

Co-founder Brown told Property Week: ‘We have been actively considering the portfolio – but there is no deal at this moment.’

The portfolio was valued at £700m at the peak of the market and before itwas placed into receivership.

It requires asset management but could bring huge gains, in line with Max Property‘s 25%-30% target returns.

Max Property’s ability to make a predominantly equity offer has put it ahead of rivals that needed debt to finance what is widely considered to be a high-risk deal.

Max Property may bring in debt at a later stage and is likely to set up or enlist an asset management team to manage the portfolio.

The portfolio comprises 130 properties with 1,500 tenants – many on short leases – and produces around £38m a year.

The void rate, based on income, is just under 15%. Max Property, Ernst & Young and adviser King Sturge are trying to agree the deal before a 16 July deadline, when the portfolio was set to be split with £40m put up for sale through a King Sturge auction (PropertyWeek, 05.06.09).

Several new bidders registered interest in buying the entire portfolio when auction catalogues were sent out last month, among them Chancerygate and Dunedin director Roun Barry with new backers.

The Industrious portfolio first came to the market in April after the collapse into receivership of holding companies Dunedin Property Capital Fund, and Dunedin Property Industrial Fund (Holdings) the previous year. At the time, however, none of the offers from parties such as AIM-listed Hansteen and Highcross reached the required price.

A sale is complicated because the debt secured on the portfolio is held through a commercial mortgage-backed securities (CMBS) vehicle. The Royal Bank of Scotland lent £650m on the portfolio and securitised the ‘super-senior’ debt, totalling £476.8m. Ernst & Young hoped to raise £300m from the sale to pay back the most senior bondholders of the Epic (Industrious) CMBS. However, as the market has continued to deteriorate and tenants come under increasing pressure, it now wants to recoup as much value as it can for the bondholders.

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