€373m loan unpaid as property values fall

A €373m interest-only loan backing an Irish commercial mortgage bond failed to repay at maturity after the underlying properties halved in value.

The loan matured on Jan 15, and a three-day grace period ended without repayment, a statement from Hypothekenbank Frankfurt, a unit of Commerzbank, revealed.

Commercial mortgage- backed security (CMBS) pool cash flows from loans to offices, shopping centres, and industrial units, and package the payments into notes sold to investors.

The Opera Finance (CMH) plc commercial mortgage bonds, which were issued in Feb 2006 and mature in Jan 2015, depend on the underlying loan for interest payments.

The default doesn’t stop interest payments to the CMBS and places the loan into a process known as special servicing. That gives Hypothekenbank Frankfurt increased powers to try to ensure the loan is repaid, which would mean the bonds would pay out by the time they mature.

The bank can, for example, now negotiate directly with lenders and property buyers to sell the underlying properties.

The loan is secured against 16 Irish properties including Dublin’s Stillorgan shopping centre and was originally borrowed by Real Estate Opportunities (REO) Ltd, which in 2011 filed for administration.

REO’s majority owner Treasury Holdings, went into liquidation in Nov 2012.

Burlington Real Estate, run by former Treasury Holdings employees, has been appointed to manage the properties, according to the Jan 15 investor report.

The value of the buildings fell to €270.5m in Feb 2012 from €570m in 2008, a report sent to investors said.

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