One of London’s most iconic office buildings, known worldwide as the ‘Gherkin’, has entered into receivership and will likely be made for sale as the current owners consider options for resolving their financial difficulties.
Deloitte has been appointed by lenders as administrators to take control of the building, whose owners have been defaulting on its debt for five years continuously. Although Deloitte has not confirmed whether the building will be put up for sale, it is not uncommon for assets in distress to be offered up for sale to recoup some capital for lenders. If tendered, the landmark cucumber-shaped property is expected to draw large numbers of institutional investors.
The 516 square foot, 41-story building located at 30 St Mary Axe was bought jointly by London-based property fund manager Evans Randall and German property company IVG Immobilien in 2006 for £600 million (€729 million; $1 billion) from Zurich-based developer Swiss Re. The purchase price included a £400 million loan underwritten by five banks, its share of which IVG chose to denominate in Swiss francs.
As the building’s value sank in the wake of the global financial crisis, the Swiss currency also appreciated against the pound, the combination of which pushed the Gherkin into a breach of its loan-to-value ratio covenant of 67 percent in 2009. The owners have remained in breach of that covenant ever since, with the current ratio thought to be around 90 percent. According to IVG, the building was valued between £473 million to £510 million in 2012.
IVG has also encountered problems of its own, slipping into insolvency last year. The company just last month completed the sale of its funds management business to Zech Group subsidiary Deutsche Fonds.
In a statement, Evans Randall said the currency woes for the Gherkin have “been exacerbated by the insolvency at IVG.” The firm added: “These factors have so far impeded Evans Randall’s ability to restructure the financing on the asset, including the injection of new equity.”
However, the firm also said: “Evans Randall has equity ready to invest and has been unable to do so because of the inability to agree a consensual solution with IVG, given these uncertainties.”
It is understood that the receivership and potential sale process will not be impacting the tenants of the Gherkin, which include Swiss Re and the UK arm of Standard Chartered. The building is estimated to have a 99 percent occupancy rate.
“We will be continuing the constructive discussions to date on a new financial structure,” Evans Randall continued. “The Gherkin is a strong, well-let asset and one that we are firmly minded to continue our involvement in.”