Valuation defended in White Tower versus Colliers case

The former Colliers International UK valuer responsible for the disputed £1.2 billion valuation of London properties which backed the White Tower 2006-3 CMBS has denied bowing to pressure from the borrower to inflate the figures.

The former Colliers International UK valuer responsible for the disputed £1.2 billion valuation of London properties which backed the White Tower 2006-3 CMBS has denied bowing to pressure from the borrower to inflate the figures.

Issuer vehicle White Tower is suing Colliers in London’s High Court, arguing that it overvalued five of the security properties in the £1.15 billion securitisation, leading to a £34.85 million loss when the CMBS eventually defaulted.

Giving evidence before Justice Burton yesterday (13 April), Carl Barrand defended the integrity of the valuation process which was undertaken in September 2006 for Societe Generale (SocGen), the prospective lender to the properties. SocGen provided a £1.45 billion whole loan to borrowers relating to property tycoon Simon Halabi. The £1.15 billion senior slice was subsequently securitised.

Barrand was a director in Colliers’ valuation department for 15 years with particular responsibility for property finance. He left to join property investor LXB Retail Properties in January 2008, where he is a principal of the firm. Barrand said that the 2006 valuation was carried out alongside two valuation colleagues with the full knowledge of senior Colliers staff.

The claimant alleges that Colliers used indicative values for the properties to inform its eventual valuation without a thorough process being followed.

Under cross-examination from Anneliese Day QC, representing White Tower, Barrand explained that it was common for borrowers to attempt to influence valuations of properties to make them higher, but that valuers would withstand such efforts.

The Rolls Building, Royal Courts of Justice, LondonBarrand said it was “standard practise” for such intervention by borrowers: “All borrowers get on the phone to talk up the value of their properties. It was ignored. Mr Halabi was no different to other market participants who believed the value of their properties was higher than we would attribute.”

Barrand admitted that Halabi thought Colliers was being “conservative” in its approach. At Day’s suggestion that Halabi was a “particularly aggressive individual”, he replied: “No, I wouldn’t say so”.

SocGen did not pressure Colliers, Barrand added.

Asked about the reason Colliers was chosen to carry out the valuation by SocGen, Barrand confirmed that he had previously valued four of the properties for a different bank in the preceding year. Familiarity with part of the portfolio and the fact that Halabi’s firm Buckingham Securities was looking for the valuation to be completed in a short timeframe was likely to have influenced the instruction, he said. “On this job, I seem to remember [Halabi] saying SocGen may be ringing you,” said Barrand.

SocGen requested a meeting with Colliers on the morning of 29 August 2006, which was arranged for that afternoon. Indicative values were discussed at the meeting, which Day suggested were provided by Buckingham Securities. Barrand said that he could not recall the origin of that schedule of values, but said it was possible an updated list of indicative values could have been produced by Colliers. He added that there was “no way” he could have endorsed those initial figures at the meeting.

On the valuation process itself, Day questioned Barrand on the method by which net initial yield figures for the properties, from which values were derived, were calculated. Barrand explained that yield figures were arrived at from his personal judgement as an experienced valuer as well as from consultations with City investment experts within Colliers. Each building’s rental profile, physical characteristics and the level of investor demand as well as reference to comparable buildings also informed the yield calculation, he added.

Questioned further by Day on the specific process followed for each individual net initial yield, Barrand told the court on several occasions that he had limited recollection of the details due to the length of time which had passed since the valuation.

Day also focussed on the lack of documented email communication surrounding the process, describing as “staggering” the absence of emails on the subject of the yield calculations. Barrand countered that most discussions with colleagues took place over the phone or in person and referred to the “open door policy” adopted by Colliers’ head of valuation Russell Francis.

“This was the largest valuation I’d done with Colliers and one of the largest Colliers had done [for a property financing],” Barrand said. “I’d contacted those at the senior level in Colliers to let them know it was being undertaken and I had spoken at length with the head of my department. In order for me to be able to provide those figures they’d be absolutely certain I’d made the right enquiries.”

During his questioning of the witness, Patrick Lawrence QC for the defence outlined an email trail between SocGen and Colliers in which the draft valuation certificate was discussed, including internal SocGen emails which were subsequently fed back to Barrand and forwarded to Francis and Colliers’ company solicitor.

A crucial aspect of the claimant’s case is that Colliers owed a duty of care to White Tower. The claimant says that a ‘reliance letter’ which SocGen requested Colliers sign in late October 2006 alongside notification that the senior loan was to be securitised, extended the duty of care to the SPV. The defence denies this is the case.

Questioned by Day on who the valuation report was to be addressed to and duties owed, Barrand said: “It was understood by me that this was only a valuation on behalf of SocGen and the junior lender.”

When challenged that he knew the loan would be securitised, Barrand replied: “I didn’t know. I knew it was a possibility because of the reference that it could be used in a prospectus. I knew there was a possibility not a probability.” Later during his testimony, Barrand added: “My valuation wouldn’t have changed were there or not a securitisation.”

Acknowledging that Colliers agreed that the valuation could be disclosed to prospective investors in a CMBS, he said: “But they couldn’t rely on them; that was the understanding.”

The £1 million fee for the valuation was arrived at in part due to the fact that the large valuation was required by SocGen to be received within a few weeks of instruction, resulting in Barrand and his colleagues working until midnight several times and over weekends.

During his questioning, Lawrence for the defence asked: “If someone had said to you in 2006 that [senior Colliers staff] were consciously putting Colliers’ name to inflated values, what would you have said?” Barrand replied: “It wouldn’t happen”.

The case continues.

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