EXCLUSIVE: Blackstone And Abu Dhabi-Backed Portfolio Goes Into Administration

Even the world’s largest investors can’t avoid the crisis in UK retail and leisure property. The companies that own a trio of UK assets backed by a Blackstone fund and an Abu Dhabi state investment fund have fallen into insolvency and been put into administration, Bisnow can reveal. 

Partners at Grant Thornton have been appointed administrators to the special purpose vehicles that own the Five Ways Entertainment Centre in Birmingham, the Festival Leisure Park in Blackpool and the Garden Square shopping centre in Letchworth.

The assets were bought by the Valad European Diversified Fund in 2014 and 2015 for a combined £66.5M. But accounts for the fund show that the value is likely to have dropped to below the £38M of debt, provided by Royal Bank of Scotland, secured against them. The fund’s directors put the SPVs into administration, the UK equivalent of Chapter 11 bankruptcy, because the debt was in default.

The accounts also show that the fund has two main investors behind it: Green Park Investments, a vehicle owned by the Abu Dhabi Investment Council; and BTO Diversified European Property, a vehicle owned by a fund in Blackstone’s Tactical Opportunities investment division.

“The impact of Covid-19, combined with unprecedented longer-term headwinds facing the sector, has significantly impacted leisure and retail assets globally,” a spokesman for the Blackstone fund said in a statement to Bisnow. “Despite every effort, three separate SPVs that own these assets are in administration. We are working closely with all parties to ensure the best possible outcome is achieved for all stakeholders.”

A number of tenants at the sites sought rent and service charge concessions after the pandemic negatively impacted their businesses, administrators with Grant Thornton told Bisnow in a statement.

“In light of the reduced site income, the directors formed the view that placing the companies in to administration provided the opportunity for the sites to continue to be managed and ultimately sold at the optimal time for the benefit of the creditors of the companies,” the company said.

Joint administrator Sarah O’Toole added: “Whilst COVID-19 continues to impact tenants across the portfolio, these sites will remain attractive to the right buyers and we are working with our appointed agents to determine how and when to bring them to the market in light of the ongoing economic uncertainty.”

The Fiveways centre in Birmingham was the largest of the assets now in administration, bought for £35M in 2014 from UK & European Investments at an 8.1% yield. At that point it was home to legendary nightclub Gatecrasher, which closed in 2015. Tenants in the 199K SF centre at the time of the administration include Cineworld Cinemas, Grosvenor Casino, Euro Car Parks, Pure Gym, Revolution Bars, Five Guys and Nandos, data from LandTech showed. 

The 160K SF Garden Square shopping centre in Letchworth was bought for £19M from Praxis in 2015, with the price reflecting a yield of 8.6%. Tenants include Dorothy Perkins, Boots, New Look and Costa Coffee. 

The 86K SF Festival Leisure Park in Blackpool was bought for £12.5M in 2015 from Scottish Widows, with the price reflecting an 8.9% yield. Tenants include Odeon Cinemas, Frankie & Benny’s, Bannatyne’s fitness centre and McDonald's. Cromwell was pursuing a £7M redevelopment that would see a large bingo hall added to the scheme. 

Like many private equity investors, the Blackstone and Abu Dhabi-backed fund has hit the rocks because of retail and leisure assets bought at what looked like cheap prices as the market recovered in the middle of the last decade. But changing consumer habits, exacerbated by the coronavirus crisis, have hit the sectors hard. 

The Valad European Diversified Fund was set up in 2013, with an initial £150M of equity from Blackstone and ADIC and managed by Valad Europe, the European fund management arm of Australian investor Valad. 

At the time of the fund’s inception, Valad was owned by Blackstone, which bought it in 2011 as Valad struggled to work through debt taken on in the run up to the financial crisis. 

Blackstone sold Valad Europe to another Australian firm, Cromwell Property Group, for €150M in 2015, and Cromwell is now the fund’s manager.

At its height, the fund had assets of around £800M across the UK, Germany, France and the Netherlands. It bought assets it described as core-plus or value-add using debt of 50% to 65% loan to value. 

Annual accounts for the fund to December 2019 show that at the year-end it had £139M of assets remaining, including the three properties now in administration. It had £84M of debt, all of which was due to be repaid within a year, and 45% of which was in technical default, the accounts showed. It paid a £16M dividend to its backers in 2019.

Blackstone’s Tactical Opportunities division was set up in 2012 and one of its co-founders was Blackstone European property chief Chad Pike. It is not a dedicated property investor, but can invest in any type of asset where it sees value. The funds it manages have invested in everything from insurance companies to skin-care brands to cold storage facilities for the life sciences industry.

In the property world, beyond backing the Valad fund it has invested in shopping malls in Brazil and backed UK residential lender Pluto Finance.

Blackstone’s property division is dealing with another, much larger, loan negotiation in the European retail world. In 2016 one of the firm’s European opportunity funds bought the 1.2M SF Blanchardstown shopping centre on the outskirts of Dublin for €950M. Last week Bloomberg reported that junior lender Goldman Sachs is preparing to take control of the asset after the pandemic hit rental income.  

Debtwire reported in August that Blackstone was in consensual talks to hand the centre back to lenders. AIG and Morgan Stanley have €580M of senior debt secured against the centre, it said, with Goldman having a €150M junior loan. 

Cromwell Property and ADIC did not respond to a request for comment.