A fire sale of U.K. property by Dubai World investment arm Istithmar World is unlikely because much of its real estate is ring fenced within offshore companies, said people familiar with the situation.
While Dubai World, or Istithmar World, could still choose to put some of its assets on the market to generate cash, the value of those assets would have to be larger than the amount of debt they carry, one person close to the situation said.
Developer and asset manager P&O Estates, which manages properties in the U.K. and Europe for Istithmar World, wouldn't disclose the value of its portfolio or the debt carried by each property, saying only that all of the assets continued to generate sufficient income to service interest payments.
Lenders typically have taken a lenient approach to commercial property loans during the economic downturn, which has roiled the property markets and slashed capital values. Borrowers technically in breach of loan-to-value covenants have been allowed to extend their loans as long as they continue to make interest repayments. A loan-to-value ratio is a lending-risk assessment measure calculated by dividing the amount of the mortgage by the appraised value of the property.
Istithmar World's Art Deco London building the Adelphi, for instance, is in breach on its GBP235 million loan, but continues to service interest, a spokesman for P&O Estates said. Istithmar could not be reached for comment.
Istithmar World's properties managed by P&O Estates are protected against default by the parent company because they are owned by separate offshore companies in places such as Jersey with separate loans, according to a person close to P&O Estates.
"It's business as usual," the person said adding that, while there was a lot of speculation in the market, properties managed by P&O Estates were not at risk.
Istithmar World in November sold two buildings in London to specialist developer Great Portland Estates PLC (GPOR.LN) for GBP10 million, and a share in future development profits. It had paid some GBP80 million for the buildings a couple of years ago.
Dubai World Tuesday said a restructuring would affect Dubai World and subsidiaries including Nakheel World and Limitless World, but not other businesses such as Istithmar World and Ports & Free Zone World, which it said were on "stable financial footing." The state-owned conglomerate, which said last week that it is seeking a standstill on its debt, has liabilities of close to $60 billion.
P&O Estates still actively is looking to develop Istithmar World properties Aviator Park, Causeway Corporate Center and the Regents Quarter but is no longer actively considering Elizabeth House at Waterloo as it is majority-owned by Morgan Stanley Real Estate Fund, said Ian Barnett, investment director at P&O Estates.
Istithmar World also owns U.S. luxury retailer Barneys New York, the Mandarin Oriental and W hotels in New York and Corinthia Metropole in London.
UKCIG Property News, December 2009
Wednesday, December 2, 2009
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