Colliers’ Titan CMBS valuation appeal heard in court this week

Colliers appeal against a High Court ruling last year that it overvalued an asset in Germany by €32m in the Titan Europe 2006-3 CMBS deal finished yesterday.

The Court of Appeal reserved its decision which is expected to be handed down in several weeks’ time.

Colliers’ case is that a  judge was wrong to hold that the CMBS issuer in the Titan v Colliers case was the correct claimant and also had no basis for finding an asset overvalued.

In his ruling last year, Mr Justice Blair found that Colliers negligently over-valued the Quelle HQ in Nuremberg, Germany, which was security for a €110m loan sold to Titan, by €32m. He also ruled that the agent’s duty of care extended beyond the lender to the issuer, with special-purpose vehicle issuer Titan having suffered a loss. Titan was entitled to damages of €32m.

In the appeal, counsel for Colliers argued the judge had no basis for finding that the Quelle HQ had been incorrectly valued in 2005 and that the original €135m assessment was within the bracket of reasonable valuations.

Colliers also argued that the issuer, Titan Europe 2006-3, is not the correct claimant in the case and did not suffer any losses from the CMBS deal, as the notes it sold to investors ensured it was fully reimbursed. It is the investors, or noteholders, who suffered losses and are the correct claimant.

Titan argued the appeal should be dismissed and the award of of €32m of damages upheld.

The Titan v Colliers case last year was hailed as “groundbreaking” by legal experts and likely to encourage other negligence claims over securitisations that went sour and prompt changes to the provisions included in new, ‘CMBS 2.0’ deals.

Law firm Berwin Leighton Paisner, which has advised on many securitisations, said last year’s judgement “was groundbreaking, as the first case in which an issuer has been held to have legal standing for a negligence claim against a valuer, although it was the originator [Credit Suisse] that instructed the valuer and obtained the valuation report”.

The appeal is the latest development in a series of court cases testing the legality of certain aspects of legacy CMBS deals.

Credit Suisse recently begun legal action against its own Titan Europe 2006-2 deal in what is believed to be the first action of its type by a Class X noteholder.

The €862m, 11-tranche Titan Europe 2006-2 deal contained a €50,000 Class X tranche. The transaction was originally a securitization of seven loans, originated by Credit Suisse, made on 208 properties located across Germany, mainly multifamily assets.

Credit Suisse claims the rate of interest due to it as the Class X noteholder was incorrectly calculated. It has named the issuer, Titan Europe 2006-2, the note trustee, US Bank Trustees Limited (originally ABN Amro Trustees Limited), and the agent bank, US Bank (orginailly ABN Amro), as defendants.

Last week, the High Court in London ruled proceeds from the sale of assets in the heavily defaulted £850m Gemini CMBS should be classified as principal and not interest, entitling only Class A noteholders to receive payments from asset sales. Had the court ruled sale proceeds as interest, then the junior noteholders, classes B to E, would also be eligible for payments.

See October’s Real Estate Capital for more on recent legal action in the CRE finance market, in an article by Rosling King.