Source : Business Times - 7 Apr 2009
But Simon Halabi faces uphill battle as banks hoard capital, interest costs rise
Billionaire property investor Simon Halabi is seeking to refinance £1.4 billion (S$3.1 billion) of debt borrowed against nine London buildings at a time when few banks will lend to commercial real estate owners.
The debt, which was packaged into bonds, is the UK’s largest securitised real estate loan expiring in 2009, according to data compiled by Bloomberg. It’s competing for capital with £50 billion of loans backed by stores, offices and warehouses in Britain that need to be refinanced through 2010.
Mr Halabi’s loan is due in October, according to loan manager Hatfield Philips International Ltd. Only 12 banks are prepared to lend more than £25 million to investors in UK commercial real estate, according to estimates from broker Savills Plc.
The global credit crisis is forcing banks to cut lending after recording US$1.3 trillion in writedowns and losses.
‘It’s very likely the loan will default,’ said Alexander Zeidler, an analyst at Moody’s in London. ‘We don’t think too many institutions will be willing to lend the amount of money needed to refinance.’
In a Dec 17 report, Moody’s downgraded the rating on £678.5 million of class A notes backed by the buildings, that include JPMorgan Chase & Co’s main UK offices, to Aa2 and said that there was a ‘very high likelihood of default at loan maturity’ because of ‘limited lending activity’.
The loan is meeting its agreements, but is on a ‘watch-list’ due to its impending maturity, said Hatfield Philips in a report on Jan 30. The manager is arranging a ‘full valuation of the portfolio of properties and has contacted various valuers for competitive bids’, said Hatfield.
Mr Halabi declined to be interviewed. He is ‘working very closely’ with Hatfield Philips on a refinancing agreement, said Kamlesh Bathia, finance director at Mr Halabi’s investment firm, Buckingham Securities Holdings Plc.
The debt hangover from the UK’s five-year investment boom that ended in 2007 threatens to stifle any property recovery as banks hoard capital and landlords’ interest costs rise.
‘It’s going to be a huge problem,’ said Mark Jenkins, head of commercial real-estate lending at Nationwide Building Society in London. ‘Real estate is likely to be at the bottom of the queue for what little finance banks have. That will hold back the recovery process for some time.’
Companies controlled by Mr Halabi refinanced properties in 2006 including JPMorgan’s offices at 125 London Wall and 60 Victoria Embankment with Societe Generale. They raised £1.45 billion of debt against the office properties, about 79 per cent of their value at the time, below the 81.5 per cent limit set by lenders.
Mr Halabi’s assets include the Naval and Military Club on London’s Piccadilly; and Mentmore Towers, the former home of Baron Mayer de Rothschild in Buckinghamshire, England. He was one of the original backers of the planned London skyscraper called the Shard, before selling his stake last year.
The properties Mr Halabi is trying to refinance have combined space of 2.2 million square feet, according to Hatfield Philips.
Most of the buildings are in the City of London, where some of the largest banks and insurers have their headquarters, and the West End. They include the UK headquarters of insurance group Aviva Plc, the Aviva Tower.
Commercial property values in the UK fell the most on record in 2008 and have plummeted about 40 per cent since the market’s peak in mid-2007, according to CB Richard Ellis Group Inc.
Mr Halabi started as a director of real estate investment company Property Trust in the 1980s. The Syrian-born investor is worth about US$4 billion, according to Forbes magazine. He bought health chain Esporta for around £460 million in 2006, using £330 million of debt from Societe Generale, according to Eurohypo AG research.
Mr Halabi was among investors that banks lent money to during a property boom fuelled by the growth of securitisation.
Royal Bank of Scotland Group Plc, HBOS Plc prior to its merger with Lloyds Banking Group Plc, and other banks amassed £207 billion of property loans by the end of June 2008, according to a De Montfort University survey.
In addition, there are 77.1 billion euros (S$156.3 billion) in securitised loans against UK commercial properties, according to Barclays Capital.
Most of the loans were for 75 per cent to 80 per cent of the value of the properties being bought, according to De Montfort. Since then, prices have slumped.
‘If you took a loan out two to three years ago, you’re likely to be under water,’ said Mr Jenkins. ‘The bank is stuck with having to extend further facilities to you no matter what, or appoint a receiver. In many cases, I suspect the banks will extend the facilities.’
Banks would prefer that expiring loans are repaid, according to William Newsom, head of valuation at Savills, who surveyed more than 100 lenders. There won’t be enough capital to do that, he said. ‘There are lenders out there with an appetite to lend, but only a fraction of what will be necessary over the next couple of years. We’re in uncharted territory.’
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