Morgan Stanley seeks to buy time on Madrid office debt

Morgan Stanley is asking its lenders for an extension of €105m of matured debt that a MSREF fund borrowed against the IBM headquarters in Madrid.

In pushing back the securitised loan’s current standstill period by an initial two years, it hopes to be able to renew the building’s lease with IBM, which is running out.

This would mean the asset  could be sold for more than the outstanding loan amount 12 to 18 months later, as it is in a prime location and would have a strong tenant locked in. The debt is securitised in Rivoli Pan Europe.

Valuer Cushman & Wakefield estimates the property to be worth €74m now, but this could shoot up to €115m if IBM were to renew its lease for 10 years when it expires in September 2015.

MSREF has few other options, as lenders in Spain have been put off refinancing the debt because of the uncertainty surrounding the lease renewal.

If IBM does not renew its lease – which is seen as unlikely, given that the property was purpose-built for the company – the vacant building would reflect a value of €50m.

MSREF’s financial adviser, AgFe, proposes an extension to April 2015, with an option of an additional one-year extension if the lease is renewed or the building re-let, during which time the property must be sold.

If it hasn’t been offloaded  by the end of the 12-month extension, the special servicer will take control and have 15 months to sell the asset prior  to the loan’s maturity.

The borrower is tempting bondholders to back the plan in a vote on 4 April by offering a consent fee of 1.1% for class A noteholders; 0.9% for class Bs; and 0.7% for class Cs – to be paid pro-rata. Brookland Partners is advising the noteholders.

The proposal also includes  a deferred exit fee payable to noteholders if the asset sells at above a threshold price – the first time such an initiative  has been included in a multi-borrower transaction.