PIMCO and Legal & General Group Plc have been accused of placing “undue pressure” on property valuers in a bitter scrap over the future of a famous Brussels skyscraper whose owner has collapsed into insolvency.
The owner of The Finance Tower, the 142 meter (466 feet) high building located in downtown Brussels, filed a lawsuit in the English High Court in a bid to to stall an attempt by its lenders to freeze rental income, according to documents lodged in London and New York courts. The building is ultimately owned by JR Global REIT, a property investment vehicle listed in Korea that fell into insolvency last month.
JR REIT’s 2020 acquisition of the building was financed with about €724 million of debt, of which almost half came via PIMCO from four Allianz SE owned entities. L&G and Sumitomo Mitsui Financial Group Inc. each provided about €135 million, while BayernLB provided about €90 million.
In a New York filing seeking documents from L&G’s Chicago based US unit, attorneys at Boies Schiller allege that the lenders are attempting to drive down the building’s value to trigger a condition of the loan that would force cash to be retained to help pay down debt.
“They were trying to manufacture a “cash trap” event,” attorneys acting for the Finance Tower’s owner said in the US filing. The lawyers allege the lenders placed “undue pressure” on valuers at Knight Frank LLP “to reduce its valuation to a figure below €950 million ($1.1 billion).”
Large office buildings like the Finance Tower don’t change hands often, so there can be disagreement over true value. Knight Frank resigned as the valuer and the building was appraised by JLL, who said it was worth around €920 million. This was an “unreasonably low valuation,” lawyers for JR Global argue. Knight Frank had produced a valuation report that placed the value closer to the €1.2 billion it was bought for.
Representatives for Knight Frank, L&G and PIMCO declined to comment on live litigation. JLL didn’t respond to a request for comment.
Valuers from Knight Frank met with Bruno Dord, head of European debt origination at PIMCO Real Estate, in January of this year, according to a filing at the London High Court. It’s alleged that Dord told them that any valuation over €950 million was “ridiculous,” and Knight Frank resigned shortly after.
Dord didn’t reply to a request for comment sent to his LinkedIn account.
The valuation by JLL came in far lower due to to incorrect assumptions and methodologies, the building’s owners claim, including overstating the risk that the building’s sole tenant, the Belgian government, could leave when the lease expires in 2034.
That loan on the building came due in 2024 and the owners attempted to bring in new lenders. Ultimately, they were forced to inject additional capital to reduce the outstanding principal of the loan and the existing lenders agreed to refinance the tower with €600 million of debt.
While the acquisition was originally led by Korea’s Meritz Securities, it subsequently listed the holding vehicle on the Korean Stock Exchange and it is now owned by 28,000 investors. In order to inject additional capital to secure the refinancing, the company issued a bond in Korea. After missing a payment on the bond, the REIT was placed into bankruptcy protection in April.
“JR Global REIT remains fully operational,” a spokesperson for the investment firm said by email on Friday. The company is using a court-supervised restructuring program to renegotiate its financial structure without entering into formal rehabilitation proceedings, the spokesperson added.
The Finance Tower was among the largest deals in a €20 billion wave of Korean investment into European real estate near the peak of the free money era. While those investors favored large offices with long leases to tenants with top credit ratings that provided bond-like income streams, they’ve since been plagued by plunging valuations.
In addition to the jump in interest rates that’s impacted all commercial property, the increasing capital expenditure required to improve the environmental performance of older offices and doubts about tenant demand in the aftermath of the pandemic have weighed particularly heavily on the value of large office buildings.
That’s caused a sharp pull back in deals for offices across Europe that’s been most pronounced in smaller and less liquid markets. Investment in Belgian commercial real estate has more than halved since the peak in 2022, while office leasing in Brussels has slowed and vacancy rates have increased.
Just €82 million was invested in Belgian office properties in the first quarter of this year, according to data compiled by JLL.
Photograph: The Finance Tower in Brussels; photo credit: Hatim Kaghat/AFP/Getty Images
Topics Lawsuits
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