Lenders Take Control Of £1B In Assets — But Finding Buyers Right Now Isn’t Easy
Lenders have taken control of assets with more than £1B of debt secured against them in recent months, analysis from Bisnow has revealed. But despite the amount of capital raised for distressed purchases, finding buyers in the current market is proving tricky.
A review of filings from administrators and receivers to assets and companies once valued at more than £2B highlights the complexity of selling distressed schemes — especially in sectors facing dropping demand and in a financing environment that makes it hard for typical buyers of distressed assets to dive in.
Distress is coming through quickest in the development sector, Bayes Business School senior research fellow and Project Director Nicole Lux said, pointing to shorter loan periods. Borrowers need to put up a lot of new equity to account for higher margins as loans underwritten before recent rises in interest rates come to be refinanced.
“You’re going to see more and more distress being triggered,” Lux said. “It won’t be a quick recovery. Interest rates are high, and they will stay high. That means once yields have adjusted, they will stay at a higher level.”
Below, Bisnow outlines seven key situations where lenders have taken control of assets and takes a look at the issues around them.
Parkview, West London
Partners from RSM were appointed administrators to the company that owns Parkview, a 288-apartment scheme in Brentford, west London, in December 2022. In February, CSquared Real Estate and Watling Real Estate were appointed to sell it, with a price tag of £100M mooted.
The background to the administration is out of the ordinary, as explained in a report from the administrators. A group of investors came together in 2017 to put up equity to convert a former office block into rental apartments. In 2021, OakNorth provided a £55M loan to support the process of completing the scheme and letting all the units.
But a 2020 sprinkler pipe had leaked water into 40 of the flats, necessitating significant repairs. The ownership consortium made an insurance claim to AXA, but it was rejected after one member of the consortium, former Goldman Sachs International banker Michael Sherwood, was named in a criminal prosecution by the Malaysian government relating to the alleged defrauding of one of the country’s sovereign wealth funds, 1MDB.
Though the case was settled and the proceedings were discontinued, AXA rejected the insurance claim on the basis of the criminal proceedings. The decision was appealed, but AXA won — a result that left the owners needing to raise £3.5M of new equity, which they couldn’t do. An “acrimonious” falling out ensued, according to the administrator’s report.
As interest rates rose, paying the interest on the loan got harder, particularly as trading at the scheme was impacted. In late 2022, OakNorth called in the administrators.
Since the appointment, the administrators have had to deal with a broken heating, ventilation and air conditioning system; tenants turning off their HVAC systems at the mains to try and avoid paying for heating, causing their neighbours’ systems to turn off as well; and tenants failing to pay rent and arrears not being recovered.
In the most recent report from administrators, signed in June, RSM said that the marketing period for the building had been concluded and that a sale was in progress
1 Palace Street, Central London
The largest building in administration or receivership in the UK is 1 Palace Street, a luxury residential development comprising 72 apartments right next to Buckingham Palace. It is owned by SHUAA Capital, a Dubai-based investment firm, and being developed by Northacre, which is also owned by SHUAA.
The scheme was hit by delays and slower-than-expected sales as a result of the pandemic, the developer said in an interview in 2020.
Bisnow revealed that partners from FRP Advisory had been appointed administrators to the scheme in May this year. A £288M development facility from First Abu Dhabi Bank was scheduled to mature in December 2020 but was extended to December 2021, according to the last set of accounts filed by the company in 2019. Another £65M of bonds provided to the special-purpose vehicle that owned the scheme by its parent company were cancelled in August, bond records showed.
FRP did not respond to a request for comment on the status of the project, which remained unfinished in May, or on whether a sales process had been initiated.
5 Churchill Place and 20 Canada Square, Canary Wharf
Agents have been appointed to sell the 527K SF 20 Canada Square for £160M, React News reported. Cheung Kei paid £410M for the building in 2017, but BP, one of the two main tenants, is exiting the building. Partners at Alvarez & Marsal were appointed fixed charge receivers over the special-purpose vehicle that owns the building in June. Lloyds has a £265M loan secured against the building.
Cheung Kei bought the 319K SF 5 Churchill Place in 2017 for £270M, and partners from FTI were appointed administrators and receivers over the companies that own it in July. Lloyds has a £175M loan against the building that it was trying to sell before the administration. J.P. Morgan occupies the building on a lease that expires in 2029. Agents have also been lined up to sell the building.
Highcross Shopping Centre, Leicester
Partners at Savills were appointed receivers to the 1.1M SF Highcross shopping centre in Leicester in March. Japan’s Norinchukin Bank bought 50% of the centre from Hammerson alongside M&G using a £162M loan from German bank Helaba in 2018. But Helaba ultimately called in the receivers.
Hammerson’s stake in the centre had a loan from NatWest secured against it, which was bought last year by hedge fund Attestor as part of a wider loan portfolio sale. Attestor also bought out Helaba this summer and is now the full owner of the scheme.
Attestor has appointed Ellandi as asset manager, and attention will now turn to whether it progresses with a proposed 332-apartment build-to-rent scheme at Highcross for which Hammerson had secured planning consent. Packaged Living was the development partner on that scheme.
The Collective Old Oak Common, North West London
The 546-room scheme in Old Oak Common formerly owned by collapsed co-living firm The Collective highlights the difficulty of selling assets out of insolvency proceedings. The company went into administration two years ago and the building is 95% occupied, but it still remains unsold and in the hands of lenders, including Deutsche Bank and Gravis Capital.
The lenders had hoped to float a co-living REIT in early 2022 that would have bundled together all of The Collective’s assets and sold them into the public market. That plan was scuppered by the volatility created in financial markets by Russia’s invasion of Ukraine. While The Collective’s Canary Wharf outpost was bought by Crosstree for more than £180M earlier this year, Old Oak Common remains unsold.
In the prospectus for the proposed initial public offering, the building was valued at £118M. But in a half-year report for Gravis, which provided a loan to The Collective, the company said the value of that loan had been written down and that a sale of Old Oak Common had been delayed. The write-down was partly caused by the cost of fixing cladding issues, the report said.
Royal Albert Docks, East London
The 700K SF first stage of giant east London office scheme Royal Albert Dock went into liquidation and administration in July last year after loans totalling more than £80M taken out by Chinese developer ABP were not repaid. That first 21-building phase cost nearly £300M to build.
Investor DPK reached an agreement with liquidator PwC to buy the first phase early this year, entering a deal to buy a company that owned the scheme’s underground heating systems. But U.S. hedge fund Baupost is suing DPK for £158M, saying the pair had an exclusivity agreement to buy the scheme. DPK is defending the claim, saying no such agreement existed.