Rothschild will attempt to push through an enforced managed sell-down of Noel Smyth’s 45-strong £130m Alburn Real Estate UK secondary portfolio, in an effort to maximise recovery for debt investors.
The portfolio, which is expected to come to market early next year, comprises 29 offices, worth £94.5m, 13 industrial warehouses, worth £22.1m, two retail assets worth £3m, and a shopping centre, worth £9.9m.
These include include: Lambert Court in Eastleigh, valued at £11.4m; Project House in Tottenham Court Road, valued at £9.9m; and the Waterdale Centre in Doncaster, worth £9.9m.
The disposal strategy, which is expected to minimise losses for bondholders in the defaulted Alburn Real Estate Capital (REC 6) CMBS, could be thwarted by the new owner of the £11.7m junior loan, Vincent Barrett’s Pearsanta, which has controlling influence over the appointment, or not, of a special servicer.
Pearsanta has indicated its intention to confirm the appointment of a special servicer on 7 December, which, if followed through, would hand over the decision of which assets to sell, in which order and according to the timescale the special servicer sees fit.
The new ownership of the junior loan – out of the money even in Smyth’s recovery proposal – is significant in the eventual unwinding of the Alburn portfolio.
There is an apparent link between Barrett’s Pearsanta – which in Gaelic means “personal” – and Smyth’s Alburn in that the two Irish men share the same accountant’s office in Oxford’s Summertown.
Early last month when The Co-Operative Bank sold the junior loan to Pearsanta (the fee for the valueless note remains wrapped in NDAs) a well-known CMBS analyst wrote: “We consider that the junior loan has moved over to a company controlled by Alburn. We consider it likely that the property company has decided to take this action in order to increase the level of control they have in negotiating for a restructuring of the loan, and in our view does hand a certain amount of control back to them.”
Rothschild, the current primary servicer and the issuer of the CMBS in February 2007, is not expected to receive the appointment, while Persanta has the potential to delay its decision.
Brookland Partners was appointed by Rothschild to provide a strategic independent restructuring review in April, along with CBRE, as property adviser, and Clifford Chance, as legal counsel.
The decision to accept Brookland’s recommendations came after a pair of presentations by Smyth and CBRE two months ago, in which Smyth recommended a three-year loan extension out to CMBS bond maturity in October 2016 in return for a 23.5% value uplift from £129.6m, as valued by CBRE in April, to £160m.
As payment for Alburn’s asset management proposal to bondholders, Smyth requested £500,000 in annual management fees, the negotiation of incentivisation fees and the return of £1m previously spent on its failed tender to buy back all the CMBS bonds in January, in which around 80p in the pound was offered for the senior notes.
Rothschild rejected this proposal and accepted a permutation of one of the proposals offered by CBRE, with the most fitting of CBRE’s proposal to sell down all assets by 2015, including an 80% disposal of assets by value within six months, which the property adviser suggests would deliver at total return of £140.43m.