On Wednesday the CMBS deal backed by real estate magnate Simon Halabi’s London office properties continued its inexorable blow-up.
On top of a demand for additional taxes, now revealed to be in the £4.8m range, HM Revenue & Customs has filed winding up petitions on six of the nine properties in Halabi’s London office portfolio. Notably, they include JP Morgan’s offices at Victoria Embankment and Aviva Tower in EC3.
A winding up petition, incidentally, is a court application to put a company into liquidation. Court hearings are scheduled for October 21 and 28. The £1.15bn CMBS deal has, of course, been in trouble for a while now. The market value of the properties, however, has fallen from £1.8bn in November 2006, to £929m in June 2009. The deal, known as White Tower 2006-3, defaulted over the summer.
Still, it’s not all bad news, according to WTOW 2006-3′s special servicer.In its last interest payment period – in July 2009 – over £7m from excess rent was available for partial prepayment of the CMBS notes. These properties are still generating some cash.
As BarCap analyst Hans Vrensen explains:
GBP5mn tax issue for WTOW 06-3 less than feared, but winding-up petitions still loom
The special servicer for White Tower 2006-3 today posted an update on the tax liabilities faced by six of the nine asset-owning companies in this UK CMBS transaction. The total amount of tax demanded by HM Revenue is GBP4.8mn, with court hearings scheduled for late October on the filed winding-up petitions. Given that in the previous interest payment period more than GBP7mn was available for repayment of the notes from excess rent, it is not a disastrous amount. However, it is unclear from the notice whether this is a one-time or regular tax liability.
However:
Because the special servicer anticipates that the asset owning companies might not be in a position to meet HM Revenue’s demands before the court hearings, they are considering the alternative actions that might be open to prevent the winding-up of these companies. The companies are either borrower or loan security provider in the transaction. Such winding-up might not limit the company’s ability to meet the debt service requirement for the next interest payment period in October 2009, but it could do so the period thereafter.
Related links:
The taxation of WTOW 2006-3 – FT Alphaville
The Halabi CMBS crunch – FT Alphaville
“Losses on UK commercial real estate could equal subprime” – FT Alphaville
A day of heavy bondage – The Property Finance Blog