European bondholders are preparing to sue one of London's top property valuers, Colliers International, over the price tag it stuck on a giant German building which was sold in 2005 and has now lost nearly 90 per cent of its €100m (£85m) value.
The listed 2.4m sq ft warehouse in Nuremberg, previously occupied by mail-order company Quelle until it went into administration in 2009, is now a huge, empty white elephant.
Colliers had valued the Quelle-Grossversandhaus – commissioned from Ernst Neufart, a Bauhaus movement architect, and completed in 1967 – at €103m in 2005 when it was sold to Canadian company Homburg Invest.
Its value plummeted, and it is now worth €12.5m, though it will be revalued again next month. The new owner is still trying to redevelop the site. But the bond holders are worried that it may never be worth enough to cover their investment. Many have already been wiped out by the drop in value, leaving only the top-class bond holders likely to recover anything.
The special servicer of the debt used to buy the Nuremberg building has issued a letter of claim to Colliers, which responded last week.
The pursuit of valuers is likely to become a regular occurrence across Europe following the collapse in worth of other buildings bought in the 2004-07 property boom. Nassar Hussain, the managing partner of Brookland Partners, a boutique real estate investment bank, said: "We are aware of a number of valuer negligence claims in relation to commercial mortgage-backed securities (CMBS) transactions which are currently being negotiated with valuers and their insurers. We expect the number of claims to increase as loans default or other events occur such as restructuring or extension requests which lead to new valuations."
The entire European CMBS market totals €73bn, of which €12.7bn worth are in breach of their loan covenants and classified as being in "special servicing". In the US, defaults on CMBS loans are also a significant problem. Fitch, the international ratings agency, said last week that delinquency rates were rising at 14 per cent a month.
This latest development is reminiscent of what happened in the 1990s recession when desperate property owners tried to recover lost money.
Jonathan Agar, the vice-president of special servicing at Hatfield Philips Germany – which advises Titan Europe 2006-3, the vehicle which the loan was packaged in – said: "While this has been going on, we have been supporting the borrower on plans to redevelop the building. But given the listed status, we must co-operate with the local government too."
Russell Francis, the head of valuation at Colliers, said: "The property was purchased earlier in 2005 at a similar figure to that which Colliers valued it at and we are confident that if any legal action is subsequently brought we will be successful."Reuse content