Opinion

Felix Salmon

The Goldman headquarters default

By Felix Salmon
September 26, 2010

There’s all manner of delicious irony here: a company called Antedon bought the European headquarters of Goldman Sachs for £355 million ($562 million) in 2007, complete with a lease to the bank which runs until 2026. Yet somehow Antedon has contrived to default on the loan, and the buildings have now been seized by Antedon’s lenders, a group led by Landesbank Berlin.

The details are unclear, not least because the original story is behind the notorious Sunday Times paywall. But on the face of it, it seems that Landesbank Berlin agreed to a deal whereby Antedon would have to pay them more money than it was receiving, in rent, from Goldman Sachs. And what’s more, since the lease runs until 2026, there was no way for Antedon to increase Goldman’s rent payments. (And yes, Goldman Sachs has rented out all of the two buildings in question, except for a tiny slice of retail.)

I can’t see any other explanation of what’s happened here. Even if Antedon was in deep negative-equity territory on its investment, it wouldn’t gain anything from defaulting on its loan so long as Goldman’s rent payments covered its mortgage obligations. After all, Antedon has now lost all of Goldman’s rent payments, and title to the buildings.

Did Antedon really commit to pay its lenders more money than Goldman was contractually obliged to pay in rent? Did it think that it could make up the difference by jacking up rents sharply in 2026? And what were the lenders thinking? It’s all very odd, to say the least. But this might be a great opportunity for Goldman to buy Peterborough Court and Daniel House outright. They’re very beautiful buildings, although Goldman might have outgrown them at this point: the two buildings have only 318,439 square feet of office space between them, compared to 2.1 million square feet in Goldman’s new NYC headquarters.

Which makes me wonder: if it’s impossible to implement size caps when it comes to banks’ balance sheets, can we maybe at least cap their square footage? It’s surely a more sensible idea than Antedon’s 2007 real-estate deal.

Comments
3 comments so far | RSS Comments RSS

The banks will soon be voluntarily capping their square footage. You don’t need a lot of office space to pick up free money from the Fed and roll it into two-years.

If the “details are unclear” because it costs GBP1 to get a day pass for the Sunday Times, it might be worth investing in a day pass.

Posted by johnhhaskell | Report as abusive
 

John, you’re confusing the cost of me reading the Sunday Times with the benefit that the Sunday Times gets from me when I do so. They get £1, it’s true. But the cost to me, in terms of time and hassle and trying to navigate a broken web, is much greater than that.

Posted by FelixSalmon | Report as abusive
 

I would be surprised if there was any expectation of significant upward lease revision if it had a 20 year lease, even in a 2007 deal. My guess would be that there are covenants, most likely an LTV covenant, that would have been tripped upon a reappraisal of the property. The other possibility is some kind of problematic derivatives deal, but the only times those have been an issue is the cost associated with breaking them, which prevents enforcement, not causes it.

Posted by jakethesnake | Report as abusive
 

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