(Bloomberg) -- China Life Insurance Co. is in crunch talks with lenders to an office tower in Canary Wharf to help stave off the locality’s third potential major default, as the eastern financial district of London grapples with some of the city’s highest vacancy rates.

The landlord is in discussions with Lloyds Banking Group Plc, which originally financed 10 Upper Bank Street before syndicating the vast majority of the debt to several Chinese banks, about a plan to avoid an event of default ahead of the loan’s maturity next month, people with knowledge of the negotiations said.

There is more than £350 million ($445 million) of debt outstanding against the building, the people added, asking not to be identified as the talks are private. A representative for Lloyds declined to comment, while China Life didn’t respond to requests for comment. Canary Wharf Group, which retains a minority stake in the building and acts as asset manager, “is proactively engaged in positive and advanced discussions with the lenders to secure a refinance,” a spokesperson said in an email.

The talks are the latest sign of pressure on Canary Wharf, which has seen a raft of tenants including HSBC Holdings Plc and Moody’s Corp. announcing plans to vacate. Lloyds has already taken back the keys to two other properties in the area that were owned by another Chinese investor, Cheung Kei. In both cases, the UK lender had also sold down most of its original loan but played a central role in coordinating talks aimed at finding a resolution. 

The 32-story 10 Upper Bank Street tower was completed in 2003 and leased to Clifford Chance, but the law firm has already agreed to move to new premises in the City of London ahead of its lease expiry in 2028. Some of Clifford Chance’s space is already subleased to other tenants, with Deutsche Bank AG originally taking 11 floors of the building in 2015, before reducing its footprint to eight, Bloomberg News reported in 2021. 

The value of the building has plunged due to increased vacancy and the fact that the length of the existing lease has dwindled. Parts of the property will require upgrading to attract new tenants when Clifford Chance leaves.

About 15% of the floors are already vacant and available for sublease. CBRE Group Inc. is currently marketing three floors in the building, while Cushman & Wakefield Plc is offering two others, according to advertisements on the brokers’ websites. Jones Lang LaSalle Inc. is also marketing a floor. 

Vacancy rates in the area are about 15%, according to data compiled by CoStar Group Inc. 

China Life bought a 70% stake in the building in 2014, while Qatar Holdings acquired 20%. Canary Wharf Group retained a 10% stake in the transaction, which valued the property at £795 million. 

The insurer bought into the building at a time when outbound investment from China was pouring into UK real estate. That’s since dried up, as capital controls imposed by Beijing have stemmed the flow of money into trophy purchases, making it harder for state-owned institutions like China Life to invest more overseas. 

Falling London office values have put a growing number of landlords under pressure when loans mature, as lenders demand more equity be injected before extending or refinancing. In Aldgate, a neighborhood to the immediate east of the City of London, German lender Helaba has appointed a receiver over the Relay building, two other people said. 

A venture led by Harbor Group International LLC bought the office and retail property for £90.75 million in 2018 with a £55 million loan from Landesbank Hessen-Thueringen Girozentrale, better known as Helaba. The building’s value has since dropped sharply, triggering a breach of the lending terms. A representative for Helaba declined to comment. React News earlier reported that receivership. 

“Harbor Group International has a 35 year history of making disciplined investment decisions and has had a presence in London through multiple market cycles,” a spokesperson for the firm said. “Currently, the London office market is extremely challenged and given evolving market conditions we continue to work to reach a reasonable outcome for all parties.”

(Updates with Harbor comment in last paragraph.)

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