International Asset Management – Sale of industrial assets in Brussels
An asset group with investments in European and South American countries decided to take a strategic turn: channel its investments in Europe into one company alone. They contracted Synesi’s services to develop a strategic plan for international asset management. The plan had to pinpoint assets to keep and those that were non-strategic to divest.
Of the latter, a portfolio with four properties in Belgium turned out to be particularly problematic. They were assets with very singular characteristics and situated in an unattractive location.
Starting point: sale of problematic properties
The objective was an upscale using concentration and optimizing the overladen cost structure. However, the loan used to buy the properties was structured in such a way that it linked the fortune of one asset to that of all the others, making the sale of individual assets impossible. It was very difficult to find one buyer interested in all the assets. And this was not the only problem.
The loan was designed according to the rental rates paid by tenants at the time. It just about covered mortgage payments making it a very cost-effective loan.
The problem was that it didn’t take into account the fact that market conditions could deteriorate as could the tenants. To continue with rental activity, it was necessary to bring the rates down or go for direct eviction. And it’s worth remembering that the agreed conditions included a clause that tied the mortgage to all four properties as an indivisible whole.
The loan was very cost-effective, but it left no margin for anything unexpected.
When the properties were purchased, the tenants had six years left of compulsory rental. The mortgage was negotiated for nine years. No one forecast that the economic situation could deteriorate so much that the contracts would not be renewed for at least another three years.
One year before the end of the mortgage, two of the properties were vacant and the tenants in the other two had yet to confirm their intention to renew.
Mortgage payments started to be higher than the rental income.
To sell or to cancel? The dilemma for international asset management
The first obvious solution was to transfer money from the mother company to cancel the mortgage, but this conflicted with the decision to concentrate money in one company alone. The other option was to sell the assets. This appeared challenging to do at an acceptable price because all had to be sold at the same time. Negotiating the renewal of the mortgage or setting up a new one seemed impossible.
The decision taken was to set a timeline to sell the asset at the highest possible price before having to choose either of the other alternatives.
Sales alternative I: the easy option
This case exemplifies the difficulties that have to be faced in international asset management.
The management team before Synesi contacted agents that they considered to offer the best guarantees. They were renowned brokers in Brussels city centre who were listed on the world’s biggest stock markets and advised the largest companies.
Over the first few weeks, some very promising reports of contacts arrived. However, as time went by, the reports began to all look very alike and included nothing new.
Finally, concrete offers of demolition arrived from the odd opportunist fund, alleging that they were only interested in two of the four properties. In reality, they intended to buy all four assets cheaply to sell them individually at market price once free of the mortgage clause, thereby making a significant profit.
At this point, the worried owners asked Synesi to supervise the sales process.
Sales alternative II: the difficult but good option
At Synesi, we decided to introduce ourselves to the tenants still in two of the four properties and to neighbors. We wanted to find out about the area, if it was a good place to work and understand what type of businesses were a good fit for the location.
We discovered that they were local companies, providers to other bigger ones that needed to be near to the airport. It was obvious why there weren’t a lot of visits – this type of companies aren’t on the radar for large international brokers. It was then that we realized that the brokers we needed were local with knowledge of the area’s business community. We put together a list by sounding out the market and went to see them. After two weeks, we had negotiated sales mandates with three of them and another two weeks later we started to receive reports on real visits to the properties.
The challenge remained the same – to find interested buyers for all the properties so that the sale could take place and the mortgage be lifted. In three months, we found two parties interested in two of the properties and a local investor interested in buying the company after it had sold two of the properties.
We were therefore able to make the transaction cheaper for all parties, even saving on the costs of winding up the company.
Conclusions and learnings
International asset management needs specific actions but also to base itself on implication, common sense and choosing the right collaborators.
- Business is done on spreadsheets but also by walking the streets. We need to come down from our offices in ivory towers and see what it is that you’re dealing with. Know what you’re selling well as well as the needs of those you intend to sell it too.
- For Synesi, our client’s mandate is the most important. For the large companies they had contacted, they were just another name to put in their CRM system under the label ‘seller’. All these companies did was wait for a match with an absent-minded buyer.
- You need to understand the problem well before choosing the tools and setting up the teams to deal with it. Using a sports car to plough a field is pointless. Getting the world’s largest property consultancy firm to sell some industrial warehouses on the outskirts of Brussels is too. You also need to compare the price of the sports car with that of the tractor that we really need.
This is an example of why the Synesi model works. We coordinate and bring together professionals who form a fundamental part of a task by taking its proportions and requirements into account.
