Litigation proceedings filed against CBRE and Warwick Street last week in the High Courts of Justice claim that the property firms “negligently overvalued” 26 properties in the original Gemini portfolio by more than £100m.
The special purpose vehicle (SPV) which issued the securitised notes financing the portfolio’s acquisition by Propinvest in 2006, Gemini (Eclipse 2006-3) Plc, submitted its claim to the Queens Bench Division’s Commercial Court last Thursday, prompting a Stock Exchange announcement yesterday afternoon.
In the statement, the issuing SPV claim that the “valuers negligently overvalued 26 of the 36 properties… in that the relevant valuations fell outside the range of values at which a reasonably competent valuer could have arrived”.
The SPV continued that had these 26 properties valued more accurately – which is estimated should have been more than £100m lower – Barclays Bank would have extended Glenn Maud’s Propinvest a smaller loan.
An independent valuer will be asked by the issuing SPV to value the 26 properties to supports the legal proceedings.
CBRE and Warwick Street, a former King Sturge subsidiary, are still to formerly acknowledge the claims made against them, but last Friday, said in a joint statement: “CBRE and Warwick Street strongly believe that the valuation, which was undertaken in accordance with industry standards and practice, reflects the market value of the portfolio at that time.
“They consider that Gemini’s claim is without merit and are confident that it will be dismissed if pursued in court.”
Deciphering the veracity of the property overvaluation claims against CBRE and Warwick Street will, based on previous legal precedents, fall to a judgement as to whether the properties’ values in or outside a subjective margin of error.
When is a property valuation negligently wrong?
Based on an assumed over valuation of £100m on the Gemini portfolio valued at £1.23bn seven years ago, this reflects just 8% across the entire 36-assets.
However, while the valuations of the 26 assets in dispute are likely to reflect higher than this 8%, the original Propinvest Gemini loan was securitised based on the entire portfolio. Further still, the 10 assets not in dispute potentially could have been undervalued, which would mitigate the impact.
The required legal judgement will possibly determine at what level valuations are sufficiently beyond the acceptable realm of subjectivity so as to be deemed negligent.
In a report by Norton Rose, published in 2012, entitled Professional Negligence Claims Against Valuers, the law firm wrote: “It is accepted that reasonably competent valuers will differ in their views as to valuation and there is therefore an acceptable range or bracket for the correct value of a property.
“In general, the bracket has usually been found to lie in the range of 10-20% above or below the true figure although each case depends upon its own facts and the particular characteristics of the property concerned and the market for it.”
Regardless, had the 26 Gemini properties in dispute been valued at £100m lower, and the senior loan extended to Propinvest was proportionally reduced at the same senior LTV in the Gemini CMBS, the performance of the securitisation would likely still rank as one as Europe’s weakest ever.
As things stand, the Gemini Eclipse CMBS is projected to be the worst-ever performing CMBS in European history, returning the deepest ever losses to AAA noteholders – the risk bracket which was supposed to be at investment grade level.
CoStar Finance 