A Bank of Ireland loan secured against a City of London office building mostly rented to WeWork is being sold at a discount.
The lender is seeking bids for a £104 million (€119 million) loan to Hana Alternative Asset Management, the South Korean investment firm that owns No 1 Poultry, people with knowledge of the process said. It appointed Eastdil Secured to advise on the sale, the people added, asking not to be identified as the process is private.
The sale of the loan exposes the fault lines in London’s office market that have been created by soaring interest rates, the steep costs of renovating older, less environmentally friendly buildings and WeWork’s bankruptcy.
Hana purchased the 150,000sq ft (14,000sq m) office building, which sits opposite the Bank of England and is made in striped pink and yellow stone, for £182 million in 2018. It was valued at £142.4 million in 2020, breaching the terms of the Bank of Ireland loan and forcing Hana to inject fresh capital. The valuation has since fallen further.
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Hana “is working with local managers and advisers to normalise local assets and is working closely with local counterparts on refinancing,” a spokesperson for the company said in a statement. Spokespeople for Bank of Ireland and Eastdil Secured declined to comment.
Earlier this year Hana invited brokers to pitch for a role in advising on a potential refinancing and sale, but it has yet to secure a deal.
[ After WeWork: The office is dead, long live the officeOpens in new window ]
Flexible office operator WeWork, which filed for bankruptcy in New York earlier this month, is already terminating many of its leases in the United States. In October, Helical forfeited individual leases for the six floors let to WeWork in the City of London after rent wasn’t paid.
The weak market is particularly problematic for many of the Korean investors that ploughed cash into London offices in the years before the pandemic. In 2019, Korean firms were second only to the US in providing external investment in European commercial real estate, according to data from MSCI Real Assets. Many of the buildings purchased were large blocks in the City of London or Paris’s La Defense district, both of which have seen vacancy rates rise and values fall.
Other large landlords in London have also reported falling valuations this month, including Great Portland Estates and British Land. In the case of Land Securities Group, the firm marked down the value of its City of London offices by 9.3 per cent in six months through September. Helical, another property manager that’s facing the departure of WeWork from one of its properties, marked down its portfolio by 11.8 per cent, according to a statement on Wednesday. – Bloomberg
