Commercial Property News

Ernst & Young partners Alan Bloom, Alan Hudson and Colin Dempster have been appointed as receivers of Dunedin Property Capital Fund Limited and Dunedin Property Industrial Fund (Holdings) Limited,the holding companies of the group which own the Industrious portfolio of 120 estates in the UK, providing 10million sq ft of space for industrial, warehouse and office use.

‘These companies do not own the property assets of the group nor do they take part in the day-to-day property management and trading activities of the group,’ the receivers said.

‘All other companies within the group are unaffected by the appointment and continue to operate as normal under the control of their existing management and directors.’

Yesterday  Dunedin Property Industrial Fund announced that it had failed to secure the short-term working capital that it was ‘urgently’ seeking in order to survive.

A notice issued to holders of the commercial mortgage-backed securities issued by Royal Bank of Scotland, which securitised the senior part of the debt used to buy the Industrious properties in October 2006, said the fund ‘cannot access the funds within the existing lending structure and does not have access to an additional credit facility’.

The amount outstanding on the bonds is £472.7m, while RBS and the junior lenders are owed £585m of debt – at least £60m more than the value of the portfolio, which fell from £631m in September 2007 to £521m at 30 June.

This is one of the first large property collapses caused purely by worried creditors in the current slump, although many fear there will be more as property prices continue to fall.

Falling prices have put pressure on the often high level of debt used to secure property assets during the boom years. The declines have left it in the hands of the bank, or in this case the bondholders, whether or not to enforce loan-to-value covenants normally in place on such loans.

The 75% loan-to-value on the senior debt was breached over the summer, when the properties were valued at £521.4million, implying a loan-to-value ratio of 90.7% for the senior loan, according to research from Barclays Capital.

This could also mean that junior mezzanine and junior subordinated mezzanine had no value, and the mezzanine position represented a 46% loss, according to Barclays.

There have already been expressions of interest in a sale of the properties, including from investment group Highcross and Citicourt Investment Partners, although the receivers could look to restructure the debt rather than simply sell the assets.