PIMCO and Legal & General Group Plc have been accused of putting “undue pressure” on property valuers over the future of a prominent Brussels skyscraper whose owner has gone bankrupt.
The owners of the 142-meter (466-foot) Financial Tower building in central Brussels have filed suit in Britain’s High Court to try to block lenders’ attempts to freeze rental income, according to documents filed in courts in London and New York. The building was ultimately owned by JR Global REIT, a South Korea-listed real estate investment vehicle that went bankrupt last month.
JR REIT acquired the building in 2020 for approximately €724 million, nearly half of which came from four Allianz SE-owned entities through PIMCO. L&G and Sumitomo Mitsui Financial Group provided about 135 million euros each, while BayernLB provided about 90 million euros.
In a New York filing seeking documents from L&G’s U.S. unit in Chicago, lawyers for Boies Schiller claimed the lender was trying to drive down the building’s value to trigger loan conditions that would force it to retain cash to help pay down debt.
Lawyers for the tower’s owners said in a U.S. filing that “they sought to create a ‘cash trap’ incident.” The lenders exerted “undue pressure” on appraisers from Knight Frank LLP “to reduce its valuation below 950 million euros ($1.1 billion),” the lawyers said.
Large office buildings like the Finance Tower don’t change hands very often, so there can be disagreement about the true value. Knight Frank resigned as valuer and the building was appraised by JLL at around €920 million. Lawyers for JR Global argued that this was an “unreasonably low valuation.” Knight Frank produced a valuation report that put the valuation at close to €1.2 billion.
Representatives for Knight Frank, L&G and PIMCO declined to comment on live proceedings. JLL did not respond to a request for comment.
In January, Knight Frank’s valuers met Bruno Dord, PIMCO Real Estate’s head of European debt issuance, according to a filing at London’s High Court. Dodd allegedly told them that any valuation above €950 million was “ridiculous” and Knight Frank resigned shortly afterwards.
Dodd did not respond to a request for comment sent to his LinkedIn account.
The building owner claims JLL’s valuation was significantly lower due to faulty assumptions and methodology, including exaggerating the risk that the building’s sole tenant, the Belgian government, might leave when the lease expires in 2034.
Building loan comes Two in 2024 The owner is trying to bring in a new lender. Ultimately, they were forced to inject additional capital to reduce the outstanding principal on the loan, and existing lenders agreed to refinance the tower with €600 million in debt.
While the acquisition was initially led by South Korea’s Meritz Securities, the holding company was subsequently listed on the Korean Stock Exchange and currently has 28,000 investors. To inject additional capital to secure refinancing, the company issued bonds in South Korea. The real estate investment trust entered bankruptcy protection in April after failing to make bond payments.
“JR Global REIT remains fully operational,” a spokesman for the investment firm said in an email on Friday, adding that the company is using a court-supervised restructuring plan to renegotiate its financial structure without entering a formal rehabilitation process.
The Financial Tower was one of the largest transactions in a 20 billion euro wave of Korean real estate investment in Europe at the height of the free money era. While these investors favored large offices with long-term leases to tenants with the highest credit ratings that could provide bond-like income streams, they have since been plagued by plummeting valuations.
In addition to soaring interest rates affecting all commercial real estate, rising capital expenditures required to improve the environmental performance of older offices and concerns about tenant demand post-pandemic have had a particularly severe impact on the values of large office buildings.
This has led to a sharp reduction in trading in offices across Europe, which has been most pronounced in smaller and less liquid markets. Belgian commercial real estate investment has more than half Since peaking in 2022, office leasing in Brussels has slowed and vacancy rates have increased.
According to statistics, investment in Belgian office real estate in the first quarter of this year was only 82 million euros. Data sorting Jones Lang LaSalle.
Photo: Brussels Financial Tower; Photo credit: Hatim Kaghat/AFP/Getty Images
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