Bloomberg News

Irish CMBS Loan Fails to Pay Out After Real Estate Values Halve

January 21, 2013

A loan backing an Irish commercial mortgage bond failed to repay at maturity after the underlying properties halved in value.

The 373 million-euro ($497 million) interest-only loan matured on Jan. 15 and a three-day grace period ended without repayment, according to a statement from Hypothekenbank Frankfurt AG, a unit of Commerzbank AG that manages the commercial mortgage-backed securities.

CMBS pool cash flows from loans to offices, shopping centers and industrial units and package the payments into notes sold to investors. The Opera Finance (CMH) Plc commercial mortgage bonds, which were issued in February 2006 and mature in January 2015, depend on the underlying loan for interest payments.

The default doesn’t stop interest payments to the CMBS and places the loan into a process known as special servicing. That gives Hypothekenbank Frankfurt increased powers to try to ensure the loan is repaid, which would mean the bonds would pay out by the time they mature.

The bank can, for example, now negotiate directly with lenders and property buyers to sell the underlying real estate, thus making it more likely investors in the CMBS bonds will eventually be repaid.

The loan is secured against 16 Irish properties including the Stillorgan shopping mall near Dublin’s city center and was originally borrowed by Real Estate Opportunities Ltd., which filed for administration in 2011.

REO’s majority owner Treasury Holdings Ltd., the Irish company which used to own London’s Battersea Power Station, went into liquidation in November 2012. Burlington Real Estate Ltd., run by former Treasury Holdings employees, has been appointed to manage the properties, according to the Jan. 15 investor report.

The value of the buildings fell to 270.5 million euros in February 2012 from 570 million euros in 2008, according to a Jan. 15 report sent to investors. Commercial property values in Ireland fell about 65 percent from 2007 to 2012, broker CBRE Group Inc. said.

To contact the reporter on this story: Neil Callanan in London at ncallanan@bloomberg.net

To contact the editor responsible for this story: Andrew Blackman at ablackman@bloomberg.net


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