Bloomberg News

Opera’s Premiere CMBS Default Tests Creditors: Mortgages

April 17, 2012

Office space in London. Photographer: Simon Dawson/Bloomberg

Office space in London. Photographer: Simon Dawson/Bloomberg

Investors in the most-senior notes of Europe’s first commercial mortgage-backed securities to default on maturity opted to sell for 40 cents on the euro up front and new bonds for the rest rather than try to restructure their share of the 601.7 million euro ($789.2 million) debt.

Opera Finance (Uni-Invest) BV’s Class A noteholders approved the proposal, which will allow them to recover 358.8 million euros, at a meeting in Amsterdam today, according to Eurohypo AG, the special servicer. The investors rejected a plan to extend all of the CMBS bonds, including the three other classes, to 2016, and hire Blackstone Group LP (BX:US)’s Valad Europe to sell the real estate backing the CMBS.

The decision may be a model for other CMBS defaults in Europe as investors decide between restructuring and disposing of property or selling their securities to the highest bidder, said Philip Cropper, CBRE Group Inc. managing director for real estate finance. About 48 billion euros of CMBS will mature during the next three years, Morgan Stanley estimates. Most are backed by non-prime properties.

“This is a first and there will be others that head across to this position,” Cropper said in an interview before today’s decision. “This will give us some lessons on the process because this has never been done.”

Dutch real estate company Uni-Invest Holding NV borrowed the money and defaulted Feb. 15, when the loans matured. Other CMBS borrowers have avoided default on maturity after creditors agreed to restructure or change the terms of their loan.

Amsterdam Mall

The notes were issued after loans backed by properties including the Magna Plaza shopping center in central Amsterdam, as well as offices and industrial buildings, were packaged and sold as a 1 billion-euro CMBS in 2005, according to data compiled by Bloomberg. Since then, some of the principal was paid through the sale of more than 100 buildings, reducing the outstanding amount due to 601.7 million euros. The special servicer for the notes, Eurohypo AG, called today’s meeting.

If neither plan had been adopted, the danger was the CMBS “would remain in a zombie-like state in which it is unclear who would direct the day-to-day operation of the company,” said Mark Nichol, a structured finance analyst at Bank of America Merrill Lynch.

Since the value of the real estate backing the CMBS has fallen so much, investors owning the three junior classes of notes approved Valad’s “consensual restructuring” plan that offered a chance of recovering some of the 242.9 million euros that they’re owed.

Class A noteholders chose to overrule the three other CMBS tranches, as permitted under the terms of the CMBS. The junior CMBS noteholders won’t get repaid under the Patron and TPG proposal.

Asset Sales

TPG-Patron offered an initial payment of 40 percent, about 144 million euros, plus interest and some expenses for the Class A notes. The balance would be in new four-year notes to be repaid with asset-sale proceeds.

The firms said their plan makes disposals less risky by reducing the amount of debt backed by the properties and because they would put money into the buildings to facilitate their sale. TPG and Patron have said they wouldn’t make a profit until the Class A notes are fully repaid.

The TPG-Patron offer may raise the equivalent value of the Class A notes to around 90 percent of nominal value, compared with 79 percent last month, Krishna Prasad, an analyst in the asset-backed securities department of Royal Bank of Scotland Plc, said in a March 27 note to investors.

“Over the longer term, we would not be surprised if they recovered close to par in principal,” Prasad said.

Attempted Sale

A June 2011 appraisal by CBRE Group estimated the “fire sale” value of the remaining 203 offices and industrial properties was about 400 million euros, according to a filing to noteholders. An attempt to sell the properties collapsed in November because bidders weren’t able to finance the transaction amid a slowdown in credit markets, according to a notice to noteholders from Eurohypo.

“The assets are widely regarded as being of mediocre quality and are also probably losing value in the absence of active management and capital expenditure,” according to RBS’s Prasad.

Constrained lending in Europe and difficulties in Dutch real estate mean a 360 million-euro value for the properties is probably also too high, Prasad said.

Unrealistic Values

Average national office vacancies of 15 percent and falling rents mean landlords should take 7 billion euros of writedowns, Ronald Gerritse, chairman of the Dutch financial markets regulator AFM, said in a Dec. 23 interview with NRC Handelsblad. Jan Sijbrand, a director of the Dutch central bank in charge of regulation, said values were unrealistic in a Feb. 5 interview with Het Financieele Dagblad newspaper.

To attract or retain tenants on a standard five-year lease, landlords are offering one to two years rent free, depressing real rents by 20 percent to 40 percent depending on the location of the property, Machiel Wolters, an analyst at CBRE in Amsterdam, said. The outlook in the market and constrained lending depressed Netherlands commercial real estate sales last year to the lowest since at least 1998, he said.

“The Netherlands is a graveyard,” Pierre Vaquier, chief executive officer of Axa Real Estate Investment Managers, said in an interview last month.

To contact the reporter on this story: Simon Packard in London at

To contact the editor responsible for this story: Andrew Blackman at

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