Lender Takes 15% Hit Just To Get Rid Of Shopping Centre Loan
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A German lender has sold a secondary shopping centre asset for 15% less than the value of the debt secured against it in order to get it off its balance sheet.
Deutsche Pfandbriefbank appointed receivers on 1 November to the 298K SF Houndshill shopping centre in Blackpool, which was previously owned by South African company New Frontier Properties.
The centre was purchased from Blackstone for £105M in 2014, and the bank provided a £57M loan to facilitate the purchase.
The value of the asset has dropped sharply in the past few years, and following the receivership, Deutsche Pfandbriefbank sold the centre to Blackpool Council for £48M, £9M less than the value of its loan, a 15% write-down.
So far, defaults and losses for banks with secondary retail loans has been minimal, but the deal shows the extent of losses lenders could be facing if they want to get rid of their exposure to poorly performing shopping centres.
It also demonstrated the next buyer banks and owners will be hoping to tap: local councils looking to buy malls and use them as catalysts to regenerate town centres.
“This acquisition will deliver a significant financial return to the council but, more importantly, it will allow us to invest in a shopping centre that is fundamentally important to Blackpool’s future,” the council said in a statement.
“Moving the centre into council ownership will provide significant benefits to our town and our residents. At the same time, we have the potential to unlock up to £50M of investment in the town through the Future High Streets and Towns Funds, which will undoubtedly give further momentum to the regeneration of the town centre.”
However, deals like this will not always be simple. Blackpool Council borrowed money from the government Public Works Loan Board to complete the deal. Earlier this year the Treasury increased the interest rate on such loans. The Forest of Dean District Council pulled out from a £50M deal to acquire a shopping centre in Worcester as a result of the increased interest rate, according to Property Week.