Bank of Ireland is racing to avoid a loss on a loan against No 1 Poultry, a postmodern pink block that houses City restaurant Coq D’Argent in London, in a sign of the extent of the challenges for the city’s office market.
The lender has hired advisers to sell the £90 million (€105m) loan secured against the building, which sits in a prime location opposite Mansion House and the Royal Exchange. But the highest bids received so far are in the mid-£70 millions, according to people familiar with the matter, although the bank is still hoping to drive the price higher.
While the sale process is ongoing it is understood that there are more than 10 bidders for the loan.
Bank of Ireland declined to comment.
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No 1 Poultry marks a relatively rare case in the London market where an imminent loan maturity and the decline in the building’s value leave not only the owner but also its lenders looking at losses.
Wells Fargo took a hit after another City office sale was agreed in October, according to React News, and two Canary Wharf buildings entered receivership earlier this year.
Office values in London and other major cities have tumbled as interest rates hammer commercial property prices and working from home cuts into companies’ need for space. Vacancy rates in London hit a 20-year high in the third quarter, according to data provider CoStar.
Top-tier modern buildings with good sustainability credentials are still in demand, but older blocks can struggle to attract interest.
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No 1 Poultry’s owners, South Korean financial group Hana Alternative Asset Management, acquired the building on behalf of its investors for £185 million in 2018. The property is currently valued at about £135 million, the sale document sent to potential debt investors shows, although formal valuations tend to lag behind market pricing.
Hana said it was still seeking to refinance the loan ahead of a maturity next week, and to improve the building’s profitability. “We will continue to normalise our assets through consultation with senior lenders and mezzanine lenders,” the company said.
The office space is let to WeWork, on a 15-year lease signed in 2018. The shared office provider accounts for roughly 85 per cent of No 1 Poultry’s annual rent, according to a presentation sent to prospective bidders.
WeWork, which filed for bankruptcy in the US last month, has been trying to renegotiate or cancel some of its leases. But the lease to WeWork is guaranteed by an entity not included in the US bankruptcy, according to the loan sale documents.
The declining value of No 1 Poultry has already caused issues for Hana. In 2021 one of the South Korean company’s investors, Daishin Securities, provided a £16 million mezzanine loan to pay down a chunk of Bank of Ireland’s loan after Hana breached one of its covenants.
The loan sale document says that there are “no current or uncured breaches of covenants”.
The mezzanine loan, which ranks behind Bank of Ireland’s senior debt, is not included in the sale. Bloomberg previously reported that the loan sale was under way. – Copyright The Financial Times Limited 2023
