Uncertainty shadows the future of London’s iconic Gherkin building
Years of defaults from one of its owners have put the Gherkin into receivership. What could happen to the famous building?
The Gherkin has been one of London’s most iconic landmarks ever since it was built a decade ago. But since one of its owners went into insolvency, the future of 30 St Mary Axe has been thrown into uncertainty.
The 40-storey building has been taken into receivership thanks to mounting debts secured against the building. German firm IVG Immobilien, a joint owner of the landmark alongside private equity firm Evans Randall, filed for insolvency last year and it appears it has not been able to keep up with its debts.
According to the Financial Times, the two companies agreed to buy the Gherkin for £600 million in 2006. Part of the cost was met by a £400 million loan from five banks, which were led by Bayerische Landesbank. When the loan finance was split between the two borrowers, IVG chose to receive its share in Swiss francs – but there was no currency hedge in place to protect them from exchange rate volatility.
Since 2007, the Swiss franc has shot upwards in value against the pound. This means that it has become harder to meet repayments. In fact, the Financial Times reports that the building breached its loan-to-value ratio in 2009 and has so far been unable to get back below the 67 per cent limit. An interest rate swap, which led to significant losses, has made the situation even worse, and lenders have finally called in the administrators.
“The senior lenders were reluctant to appoint a receiver but felt they had no choice due to the ongoing defaults, which have remained uncured for over five years,” said Neville Kahn, restructuring services partner at Deloitte and recently appointed joint receiver of the building.
None of the Gherkin’s tenants, which include Standard Chartered and insurer Swiss Re that developed the building, are expected to be affected. In fact the only thing that is likely to change is who receives their rent – and is likely that a buyer will appear quickly. Investors from around the world are likely to be queuing up to make an offer on a piece of prime London property that is recognised internationally.
“Demand for that building will be strong, given the search for trophy assets in the core of the City,” Development Securities Plc chief executive Michael Marx told Bloomberg. He added that investors from North America, Asia and the Middle East were most likely to start making offers.
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