London’s Gherkin Tower in Receivership on Currency LossesNeil Callanan and Patrick Gower
Lenders to the Gherkin, the conical skyscraper that’s one of London’s best-known landmarks, appointed a receiver to take control of the building after years of defaults.
Holders of debt backed by the 30 St. Mary Axe tower in the City of London financial district hired Deloitte LLP after “adverse interest rate and currency movements have caused the total senior liabilities secured by the property to increase materially,” the company said in a statement today. Receivership is similar to U.S. bankruptcy protection.
A fund managed by IVG Immobilien AG, once Germany’s biggest real estate company, and London-based Evans Randall Ltd. bought the Foster + Partners-designed tower from reinsurer Swiss Re Ltd. for 600 million pounds ($1 billion) in 2007. Part of the IVG fund’s loan was in Swiss francs, which have gained about 63 percent against the pound over the last seven years, increasing the amount owed to the point that it breached rules on how much debt could be held against the property.
“The covenant breach has been caused by a massive mismatch of assets and liabilities,” Mayad Rassam, head of treasury at U.K. commercial property broker Mutual Finance Ltd., said in an e-mail. “The asset is valued in sterling and in those circumstances we would always recommend to our clients that their loan is in sterling.”
Deutsche Fonds Holding AG, a privately held German company, bought IVG’s private funds management business, including the fund that owns part of the Gherkin, on March 20. Bonn-based IVG and Deutsche Fonds declined to comment. Bayerische Landesbank, a closely held bank based in Munich, and its Real I.S. AG unit provided the financing for the Gherkin’s purchase, according to the bank’s 2007 annual report. Matthias Luecke, a spokesman for Bayerische Landesbank, declined to comment. Deloitte didn’t identify the lenders in its statement.
The 180-meter (590-foot) Gherkin was both ridiculed and admired when it opened as the Swiss Re tower 10 years ago this month. More than 35 kilometers of steel was used in the construction, according to the building’s web site. Zurich-based Swiss Re, which developed the tower, and the U.K.’s Standard Chartered Plc are among its tenants. The Gherkin’s owners haven’t said how much of the space is occupied.
“The senior lenders were reluctant to appoint a receiver, but felt they had no choice due to the ongoing defaults, which have remained uncured for over five years,” Deloitte partner Neville Kahn said in the statement. The default, which related to the loan-to-value ratio, is a technical breach of the credit terms.
IVG applied for a Schutzschirmverfahren, similar to U.S. Chapter 11 bankruptcy, in August. The company will be handed over to creditors after lenders approved a plan to restructure 3.2 billion euros ($4.4 billion) of debt last month.
“Evans Randall has equity ready to invest and has been unable to do so because of the inability to agree a consensual solution with IVG,” Dominic Morgan, a spokesman for Evans Randall, said by e-mail. “The Gherkin is a strong, well-let asset and one that we are firmly minded to continue our involvement in.”
Buildings placed into receivership are often sold to recoup funds owed to lenders. James Igoe, a spokesman for Deloitte, declined to comment on whether the tower will be offered for sale. The building was valued at 473 million pounds to 510 million pounds in 2012, IVG said last year.