Consensual restructuring negotiations between Beacon Capital Partners and CMBS bondholders and the junior lender over the Citypoint tower have collapsed, raising the prospect that skyscraper could come to market this year.
Morgan Stanley, the special servicer on the £429m Ulysses ELoC 27 CMBS, is deciding on whether to enforce on the loan or bring the City tower to market, a decision complicated by a huge £100m-plus swap breakage cost on the remaining mis-matched five-year duration.
If Morgan Stanley enforces, the tower can expect to fetch around £475m, with likely significant investor interest in the asset management play to add value through increasing the occupancy level, which fell last year after Macquire Bank left.
This would be an improvement on the February 2011 £447m valuation. However, a circa £475m sale, less more than £100m in swap breakage costs, plus enforcement, special servicing and legal fees, would see between £350m and £375m returned to bondholders.
Return of capital is likely to break towards the end of the class Cs, with the class Ds and Es both out of the money as is the junior lender, thought to be Mount Kellett, which was understood to have blocked the consensual restructuring.
Alternatively, Morgan Stanley may choose to burn off the swap, effectively reducing the CMBS deal to a “zombie”, where inaction and uncertainty persists for both the equity and debt stakeholders.
Either scenario is certain to crystalise a significant loss for Beacon who bought the trophy office tower at the very top of the market, in April 2007, for £650m.
Beacon Capital Partners’ restructuring proposal was to inject around £20m equity part way down the capital stack.
This would have replenished an emptied £5m reserve fund which has been used to plug a shortfall in the tower’s rental income following the departure of Macquire Bank. Macquarie is only registered as still paying across 22,395 sq ft worth of space.
The Citypoint tower loan was securitised by Morgan Stanley in July 2007, in the investment bank’s £429m Ulysses ELoC 27 CMBS, in addition to which there was a two-tranche £106m junior loan, of which £18m was repackaged in a B-Loan Repackaging Programme, called Hillenbrand Partners.
The securitised loan’s LTV is at 96%, while the whole loan is at 119.7%. The loan matures on 21 July 2014.
There are 30 tenants in Citypoint with law firm Simmons & Simmons as the anchor tenant, which provides £11.1m, or 40.1%, of the tower’s £27.7m annual rent. The vacancy rate is 6.95%, with a weighted unexpired lease of 8.8 years.
Beacon is advised by AgFe and Morgan Stanley is advised by Brookland Partners.