EUROPE NEWS: Loan-to-own goes right

Delancey reportedly has become one of the few real estate investors to push through a loan-to-own strategy in Europe, acquiring out of default the trophy Plantation Place in London for £450 million (€507 million; $735 million). In doing so, the UK opportunity fund manager has created a blueprint for others to follow.

Having paid £525 million for the property in 2006, problems began for the previous owners – Invista Foundation Property Trust and Stobart Group – in August 2008, when an event of default occurred as a result of the current loan-to-value ratio falling below that of the loan’s covenants. The two firms have remained in breach ever since, and all attempts to restructure the debt – split between a £435 million securitised senior loan and a £25 million junior loan – have failed.

On 1 December 2010, the owners put a fresh proposal forward to bondholders to pay all the debt back via a sale of the property or part of the debt through a sale of their equity stake, which would have taken the LTV down to 70 percent. In return, the ongoing loan event would have been waived.

Noteholders indeed voted on the proposal on 23 December, when a high proportion supported the idea. In fact, 81 percent of Class A noteholders voted for it, as did 74 percent of Class B holders, 97 percent of Class C holders, 82 percent of Class D and 100 percent of Class E holders.

However, the required 75 percent threshold of Class B holders was not reached because Delancey, a single noteholder with just 2 percent of all notes but 26 percent of the Class B notes, voted against it. The firm then used its position to buy out the borrower’s equity position and assume the CMBS liability.

It has been a long road for the opportunity fund, as it first acquired junior debt in Plantation Place in 2008 and then found a way to increase its stake ahead of the proposed vote. In the end, however, the gamble paid off.
In an interesting twist to the story, Plantation Place was sold in 2006 by developer British Land, whose chief executive Sir John Ritblat retired several years ago. The development company is now an advisor to Delancey, which is run by Sir John’s son, Jamie Ritblat.