TPG lands ProLogis’ Catellus assets for $505m

TPG has further demonstrated its real estate ambitions with the $505m purchase of US real estate assets from global logistics giant ProLogis. The Dallas-based private equity titan has been steadily increasing its exposure to the sector.

Dallas-based private equity titan TPG Capital has agreed a landmark deal to acquire a large portfolio of commercial real estate in the US from global logistics giant ProLogis for $505 million.

Denver-based ProLogis said in an announcement on the deal today that TPG Capital, which has grown to $48 billion in assets under management since forming in 1992, would inherit from the deal direct ownerships or equity interests in four shopping centres, two office buildings, 11 mixed-use projects with related land and development agreements, two residential development joint ventures, Los Angeles Union Station, certain ground leases and other right-of-way leases. The deal, which will include the asset’s Catellus brand, is expected to close during the first quarter of 2011, subject to conditions.

The acquisition will aid in cementing TPG’s place as major force in the private equity real estate sector. Earlier this year, the firm set up a joint venture with Dublin-based Green Property, called Green TPG Partners, to invest more than $1.1 billion into distressed UK and Irish assets. It also teamed up with developer Rick Caruso for a $750 million joint venture aimed at acquiring retail properties on the West Coast.

Before that, TPG teamed up with private equity real estate stalwart Starwood Capital Group and the Federal Deposit Insurance Corporation (FDIC) to buy $4.5 billion of US construction development loans previously owned by Corus, the failed bank.

The firm was also reportedly interested in bidding on ING Real Estate Investment Management, the world's largest real estate investment management business, which is currently subject to a sale by parent group, ING.

TPG has never raised a dedicated real estate fund but has been investing in the sector via its two latest flagship buyout funds, the $15 billion TPG Partners V fund and TPG Partners VI, which closed on $18.8 billion in 2008 – both funds dwarfing anything raised in the private equity real estate sector to date.

In the announcement on the purchase of the Catellus assets, Kelvin Davis, senior partner at TPG said it was acquiring a business “already well positioned through its diverse portfolio of high-quality, well-occupied assets in growing markets.” He said: “As a standalone company, we believe the new Catellus will be in an excellent position to capitalize on the economic recovery [of the US] and build on its strong footprint.”

The assets TPG is buying were purchased by ProLogis when it merged with Catellus Development Corporation, a retail real estate developer initially intended to compliment its global logistics business as the two businesses shared many retail clients. However when the credit crunch hit, ProLogis was forced to rationalise its operation and has been steadily exiting businesses deemed non-core. For example, at the start of 2009, it sold its China and Japan operations for $1.35 billion to a joint venture between Singapore sovereign wealth fund GIC and a business set up by its former chief executive and chairman Jeff Schwartz called Global Logistics Properties. The proceeds of that sale, as with those of the Catellus assets, will be used to help ProLogis meet is debt obligations, although Schwartz’ replacement Walter Rakowich said they would also help to finance future developments.

Rakowich said: “We have built upon Catellus’ legacy for the past five years and are pleased to see these assets and people transfer to TPG, which has significant experience in real estate and a commitment to building the business. The Catellus assets are high-quality with good long-term prospects, but they are not in keeping with our strategy to concentrate our investment in core industrial properties in the world’s major logistics corridors.”

As part of the deal, Ted Antenucci, currently ProLogis president and chief investment officer, will join the newly-branded Catellus business until mid-2011 when he will hand over leadership responsibilities to Mike Curless, currently managing director of global investments.

In addition, ProLogis will retain a preferred equity interest in Catellus of approximately $70 million, which will earn a preferred return at an annual rate of 7 percent for the first three years of the term, 8 percent for the fourth year of the term and 10 percent thereafter until redeemed, although partial or full redemption of the interest can be redeemed at anytime, the announcement said. ProLogis also will provide $30 million first mortgage financing on Los Angeles Union Station, which will bear interest at 7 percent.