* Sees likely more discount in debt vs direct property
* Interested to buy stakes in listed real estate cos
* In talks to buy property loan portfolios from banks
By Daryl Loo
LONDON, May 26 (Reuters) - Orion Capital Managers wants to buy property loans from European banks that are reeling from a massive downturn in the property industry, but says it is yet to strike a deal because of a standoff between buyers and sellers.
The fund manager, which is raising up to 1.25 billion euros ($1.75 billion) for a new fund, said it is eyeing bank loans and more complicated debt instruments such as commercial mortgage backed securities (CMBS) due to the potential for bigger discounts, in addition to direct property which has also seen steep price drops since June 2007. "There's a disconnect between paper and real estate -- most people don't want paper, and for good reason because it failed, so they don't trust ratings or the documents," Orion Managing Director Van Stults told Reuters in an interview.
"If we can get the real estate at a better value through debt than buying property directly, then for sure we will go for it," said Stults, who co-founded Orion in 1999 with former colleagues from LaSalle Investment Management.
The UK-based fund paid 235 million euros in May to buy Spain's largest shopping mall the Plenilunio from Banco Santander's struggling Banif Inmobiliario fund, and in February took a 7.25 percent stake in Paris-listed property landlord Societe Fonciere Lyonnais for 87 million euros.
Orion, which has already raised 900 million euros from U.S. and European institutional investors for its latest fund, is on the lookout to buy stakes in more listed real estate companies.
Stults declined to comment when asked if Orion was keen to invest in Brixton, but acknowledged that the industrial landlord's high-quality UK portfolio made it "interesting".
Brixton's industrial property rival Segro on Friday made a takeover approach for the indebted firm, while newspaper reports said private equity group Blackstone and Australia's Macquarie-backed MGPA have also approached Brixton's board.
"We have made proposals to a couple of firms -- we continue to look at making capital injections into listed companies," Stults said.
LEAP-FROG DOWN THE MOUNTAIN
Orion said it has been talking to banks about buying property loan portfolios since last year but has been held up by a persistent 10-20 percent gap in their offer price and what the banks want. "It's been a kind of leap-frog down the mountain because as our view of the world continues to deteriorate, so have their own, so the whole thing has been moving downwards," Stults said.
Many of Europe's largest property lenders such as Royal Bank of Scotland and Commerzbank are sitting on billions of euros in vulnerable commercial property mortgages as the economic downturn cause capital values and rents to sink.
Property analysts expect the correction to persist until 2011 in major European markets, further hampering the ability of borrowers to pay off or even service their debts.
"When tenants go bust or their leases end and space goes empty, then you have the real troubled borrowers ... who we call people who can't pay the milk bill. And we're going to see more and more of that," Stults said.
The worsening economic climate should help convince banks to bring in cash-rich investors such as Orion to take over these loans and introduce new management, Stults said, and he expects loan sales to start happening later this year. ($1=.7158 Euro) (Editing by Jon Loades-Carter) (See www.reutersrealestate.com for the global service for real estate professionals from Reuters)