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Sign Of The Times: Lenders Agree Standstill On Mall Loan In Default

The Vancouver Centre in King's Lynn is one where a borrower chose not to put in equity to cure an LTV breach.

The lenders to a trio of shopping centres where a sharp fall in values has caused a loan default have agreed to a standstill period so they don’t have to sell the assets during the first phase of the coronavirus crisis.

According to a notice, the special servicer to the £70M securitised loan, CBRE, has agreed not to take enforcement action before January 2021, as long as there are no more loan breaches. 

Shopping centres are the area of most distress in UK real estate: The value of UK malls fell by 11% in the first quarter of the year, even before the coronavirus really got going, according to MSCI. With that in mind, the market will be watching to see how lenders deal with situations where borrowers have defaulted on loans. 

The loan is secured against a trio of UK shopping centres: the Kingsgate Shopping Centre in Dunfermline, the Vancouver Centre in King’s Lynn and The Rushes in Loughborough, which were previously owned by private equity firm Oaktree. 

They were valued at £105M in December 2017. Goldman Sachs provided a £70M loan that it then securitised, and DRC provided £16M in mezzanine debt

But by January 2019, the value of the portfolio had fallen to £86M, a 78% loan-to-value ratio compared to an LTV covenant of 75%. DRC made a payment in June to cure the breach, and in October it enforced the loan and took over as owner of the portfolio from Oaktree, according to notices from CBRE. 

But a valuation undertaken in March showed the value had fallen to £69M, which the servicer said was a 96% LTV, wiping out DRC’s investment as well. In April DRC decided not to put more money in and cure the covenant breach.