Mar 27, 2023
Lloyds Races to Sell Chinese Tycoon’s Canary Wharf Office Loan
(Bloomberg) -- Lloyds Banking Group Plc is attempting to sell a loan secured against a Canary Wharf office block owned by Chen Hongtian’s Cheung Kei ahead of an imminent maturity.
A unit of Cheung Kei has already defaulted on another nearby office block financed by Lloyds and a broker has been appointed to sell that property, according to people with knowledge of the process. The valuations of both properties have fallen sharply, risking credit losses, the people said, asking not to be identified as the process is private.
The lender is attempting to offload a £175 million ($214 million) senior loan secured against 5 Churchill Place, the former London headquarters of Bear Stearns Cos, which is due to mature next month, the people said. Cheung Kei has also failed to repay a £265.5 million loan from Lloyds secured against 20 Canada Square which came due in October and is now attempting to sell the building.
Cheung Kei has appointed Jones Lang LaSalle Inc. to find a buyer and the broker has set an initial guide price of £250 million, they added. Cheung Kei bought the property for £410 million in 2014.
A spokeswoman for Lloyds declined to comment. Cheung Kei did not respond to calls and emails seeking comment.
Commercial real estate has been roiled by the dramatic shift in interest rates over the past year which has begun to hit pricing. Older office properties are also contending against a sharp bifurcation of the market where new green buildings continue to command top rents while older, less energy efficient buildings have seen sharp rises in vacancy and falling rents.
That’s leading to a growing funding gap for borrowers with maturing loans as banks reduce the amount they are willing to extend, compounding the impact of falling values. It has also opened the door for opportunistic and distressed debt investors who are looking to buy out non performing loans at a discount.
The valuation of 20 Canada Square has been further hit by the departure of BP Plc, who said late last year its trading division was vacating the building in favor of another Canary Wharf property, according to a statement in December. The building requires substantial investment to upgrade it and improve its energy efficiency in order to lure new tenants which has further crimped its value. JLL is marketing the property to investors as an opportunity to re-purpose the space for life sciences companies which have been growing rapidly, causing a severe shortage of lab space in London.
Chen Hongtian’s Cheung Kei attempted to sell the property in 2020 for £430 million and eventually agreed a deal at £380 million in early 2021 but the talks collapsed later that year, React News reported. The company also offered 5 Churchill Place for sale last year but no deal was agreed.
JPMorgan Chase & Co. assumed responsibility for the lease on most of 5 Churchill Place when it rescued Bear Stearns in 2008. That lease is due to expire in 2029, the people said.
In addition to the senior debt, the building also has a mezzanine loan secured against it, provided by Hanwha Asset Management, the people said. The £175 million senior loan announced in May 2018 had a five-year term, the people added.
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