Complete rental success in London’s prizewinning landmark.
The closed-end property fund EuroSelect 14 “The Gherkin” was fully placed in March 2008. The fund is invested with equity of GBP 157.7 million (excluding premium) in one of the world's most prominent office buildings, the London office tower named The Gherkin. The building has been fully let to 23 well-known companies. The main tenant Swiss Re Services Limited, which up to 2023 will account for nearly half of all rental income, is a subsidiary of Swiss Re, the world's largest re-insurer. Rental income from The Gherkin is distinctly higher than debt service. At the end of the 2009 reporting year, the property was fully let. In 2010, three tenants with a share of 7.07% of total rental income exercised their special termination right. The rentable space has been long-term let above market price in the reporting year. The company is able to service its debt from the rental income. Moreover, additional liquidity which could be paid out is also available.
Assessment of the property in the spring of 2009 revealed the impact of the financial crisis to a special extent. The value of the fund property at valuation day 05.02.2009 had sunk to GBP 470 million (2007: GBP 605 million) Weakening of GBP against CHF at the same time led to a violation of the contractually agreed loan-to-value ratio. Compared with the purchase price, the property posted a valuation loss of 18.2 %.
After extended negotiations with the banks, the fund management together with financing specialists of the IVG group was able to persuade the banks to suspend the consequences of the violation of the loan for 2009 and 2010 in return for payment of a higher margin and profit retention. The re-checking of the LTV in Feburary, 2011 also showed a misconduct in the ration of real property value and dept level according to the loan agreement. The re-improved real estate value could only compensate the on-going deterioration of the exchange rate between the Swiss Franc and British Pound to some extend. The negotiations with the financing credit institutions are ongoing.
