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February 14, 2010 11:36 pm
Royal Bank of Scotland is sitting on a loss of several hundred million pounds after being forced to take back the keys on £1.8bn (€2.1bn) in German properties bought at the peak of the market by a fund run by Morgan Stanley.
In one of the largest paper real estate losses so far for a UK bank, RBS has taken control of a portfolio of 28 properties, mostly located in the Rhine-Main and Berlin areas.
RBS lent about €1.9bn to acquire the portfolio in the summer of 2007, underlining how far banks were prepared to go to finance property investments during the market boom, often requiring little of the investor’s own equity.
The value of the portfolio is thought to have dropped significantly since the acquisition, which was made with a view that the income could be improved through new lettings and sales could be struck at higher prices. However, the crash in the property market and the economic slump meant this strategy proved unsuccessful.
The Morgan Stanley-managed real estate fund has given back the keys to the portfolio, leaving RBS with a large amount of German property.
The bank’s global restructuring team is overseeing the process and is expected to hold on to the properties until they have regained some of the value lost.
All parties declined to comment.
If they were sold now, the bank would incur a considerable loss on the properties, although a lack of a revaluation of the portfolio makes it difficult to know precisely how much. Parts of the RBS loan were syndicated to other banks.
Argoneo, an asset manager mostly owned by Morgan Stanley, will continue to look after the properties for a fee, according to Europroperty.
Analysts have warned that UK banks could become some of the largest property owners in the country as they continue to work through extensive problem loan books.
Many of the loans made during the boom years are either in breach of covenant or default following the sharp fall in values, which has meant that the banks are having to decide whether to continue to support borrowers or take control of the properties or the companies that own them.
RBS and Lloyds are the most exposed, having competed aggressively to provide debt to the booming market, with loan books far in excess of £100bn.
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