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Aviva avoids property bargain on its doorstep

August 17, 2009

Aviva Investors is the latest asset manager to consider a fund to take advantage of real estate downturn, according to recent reports. By coincidence, the UK insurer is already very familiar with some of the property that may come to market as a result of the credit crunch.

The City of London office building St. Helen’s, where the UK insurer has its headquarters, was used as collateral by the property’s owner, Simon Halabi, for a commercial mortgage-backed security sold three years ago at the height of the credit boom.

That bond, called White Tower 2006-3, is now in default and CB Richard Ellis which manages the debt must decide which of the nine office buildings to sell now and which to hold on to in hope of a better price. The portfolio as a whole has fallen by 50 percent since the deal was completed in late 2006.
In a recent report on the deal Moody’s Investors Service noted properties with long leases to investment grade tenants would stand a better chance of getting a good price, citing the Aviva Tower as an example.

Moody’s says the property has a current market value of 217 million pounds; probably making it a bit too lumpy for a 250 million pound fund. If prices keep falling that may change, although at the moment the fund is apparently not looking to invest in City of London offices.

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