Royal Bank of Scotland has sold an out-of-the-money circa £140m mezzanine loan secured by Glenn Maud’s Citi Tower in Canary Wharf to Orchid Capital, an Australian and German listed equity investor, for a nominal fee, CoStar News has learned.
Orchid Capital bought the mezzanine loan around three weeks ago, in an intriguing twist which could affect the future ownership structure of the Docklands trophy tower, wrote James Wallace and James Buckley.
The 1.2m sq ft skyscraper at 25 Canada Square, E14, has hugely complicated debt structure with a syndicate of at least seven banks which hold an aggregate £875m in senior debt, including Aareal Bank, RBS’ Ulster Bank, Santander, Bayern LB, Deutsche Postbank, NAMA, Allied Irish Bank Capital Markets and Caixa, the Spanish retail bank.
With the current value of the building thought to be somewhere between £900m to £1bn, the £140m mezzanine is out-of-the-money because there of a 30-year dated interest rate swap which was entered into after Maud re-geared the lease to the global investment bank tenant.
CoStar News understands that the current mark-to-market is as much as £350m, which ranks pari passu with the senior debt. There is also a 30-year inflation swap with an estimated mark-to-market liability of around £20m.
Maud bought Citi Tower in July 2007 – at the very peak of the UK property market – for £1bn and converted the 18-year linked upward-only rent review with Citi to an RPI-linked 30-year lease, increasing the value of the building to around £1.2bn by October 2007.
Orchid Capital’s purchase of the mezzanine loan, therefore, is likely to be a play on the future sale price that could be achieved as an when a future buyer seeks to repay the outstanding debt and take ownership of the skyscraper, with Middle Eastern investors thought to have been eyeing the tower in recent months.
Any ownership struggle, though, will remain complicated by the enormous swap liability which would be triggered through loan enforcement meaning a likely uneasy stalemate will persist for some time to come.
The £875m senior debt syndicate was refinanced in October 2010 and has around 18 months to maturity, which Maud will seek to roll with the banking consortium, although some of the consortium would like the return of the capital – with NAMA chief among them.
The aggregate £1.015bn debt is higher than the tower’s likely current value, which after the combined £370m in interest and inflation swap liabilities, would erode more than a quarter of the senior debt syndicate’s £875m – to £645m, or a 26.3% fall, according to calculations by CoStar News.
NAMA’s debt ownership stems from Maud’s equity partner in the purchase, Derek Quinlan, a former Dublin tax inspector-turned property investor, real estate debt to the Irish bad bank.
The 42-storey tower was put up for sale in April last year through Jones Lang LaSalle but then withdrawn from the market last September. The property has an unexpired lease term of 23 years and a rental income of £57.6m per annum. The lease is subject to an uplift in 2015, followed by annual increases indexed at 3.2%.
All parties declined to comment.