Corestate - comment

Press reports are citing a confidential report issued by Corestate of significant losses on a property development in Düsseldorf. These relate to low occupancy rates at the short-term rental property under the “Joyn” brand. Losses on the equity are c. large single-digit millions. But the losses don’t stop in Düsseldorf. There appear similar problems with similar development projects in Frankfurt, Munich and Hamburg. Total Equity losses could therefore be as large as €50m. The article suggests that Swiss investors are considering lawsuits against Corestate.

It is not entirely clear to us how Corestate and its investors are exposed to the assets. We understand that in each case Corestate are the developer, have sold equity participations to “wealthy private" third party investors and have roped in the HFS funds to debt finance the projects. However, we do not know the extent to which Corestate remains exposed with its own balance sheet across debt and equity. For investors, the impact could be twofold. 1) The “on-balance sheet” investment is likely to be written down. It is these “On-balance sheet” investments that are expected to be the source of the liquidity to repay the upcoming convertibles. 2) The bridge loans in any of HFS’ debt funds are also likely to incur a write down. This could make it more difficult to raise the next funds to take the existing ones out of their positions. We are trying to get closer to Corestate, but its hard to gain confidence based on the scant disclosure.