March 2006 wasn't exactly the top of the London office market, but it was getting close. So there were some raised eyebrows when the UK's Invista Foundation Property Trust and asset manager Tishman International acquired Plantation Place, a fully-let central London office, for £527 million. Transport company, the Stobart Group, took a 21 percent stake.
Fast forward two and a half years and the investment is in serious trouble. The loans taken out to finance the acquisition have breached banking covenants, presenting real estate investors with an opportunity to take a piece of the equity or debt. Step forward MGPA.
Alex Jeffrey, European chief executive of Europe and Asia private equity real estate firm MGPA, told PERE the firm was in discussions with unit holders and note holders, regarding a potential “recapitalisation of the asset”, but declined to discuss things further.
Few though would ever have anticipated Plantation Place would become a symbol of the credit crunch. The original owner, British Land, developed the 550,000- square-metre property in 2004 and fully leased it to advisory blue chip tenants Accenture, Wachovia Bank, Aspen Insurance and Royal & Sun Alliance, generating £27 million of income.
In early 2006, British Land decided to sell the property to concentrate on other Central London projects. At the time, experts were suggesting that London office values had peaked. They peaked a year later.
The undoing of Invista et al, was their aggressive acquisition strategy. The company arranged three non-recourse debt facilities with a loan-to-value of around 81 percent. By the end of 2007, Invista was feeling the pain of that decision. At the time, the company said, in the event of further deterioration in value, it had cash recourses to address covenant issues.
Through 2008, though, the building lost even more value. Eventually, bank covenants were breached prompting at least two private equity real estate firms to take an interest in the property. One of them was Delancey Estates, according to the Financial Times. The other was MGPA.
Whether MGPA completes a deal remains to be same. It has the chance because the original purchasers paid too much and took on too much debt.
The question for MGPA, however, is whether it is comfortable investing in an asset which has little value creation opportunity. If it does a deal, we can be fairly sure MGPA has paid a good price.