Blanchardstown Centre owner may acquire portfolio without paying upfront for assets, writes GRETCHEN FRIEMANN

GREEN PROPERTY, which owns the Blanchardstown Centre, could acquire a €1 billion property portfolio from Anglo Irish Bank this month without paying any money upfront for the assets.

It is understood that if Green clinches the deal, the State-owned institution will agree to facilitate the transfer of ownership of the sites by issuing a mezzanine loan at a zero per cent interest rate.

Under this structure, Anglo would avoid a potentially hefty writedown on nine income-producing assets that were bought at the height of the boom, while Green would control a large-scale property portfolio that generates a sizeable management fee.

However, such a deal may leave the State bank open to claims that it is simply warehousing the properties to avoid crystallising a loss in a falling market.

According to an informed source, the mezzanine loan will be used by Green to buy Anglo’s equity stake in the assets, which is held by the bank’s pensions and investments subsidiary, Anglo Irish Assurance Company (AIAC).

Green declined to comment on the transaction, but a senior source at the company described the deal as “complex and sophisticated” and stressed it is designed to ensure the bank “recovers” its money. The source argued that similar transactions are being pursued by financial institutions across Europe and the UK as “banks seek an alternative to vulture funds”.

Yet as one industry expert points out, the equity value on the Anglo portfolio may have been entirely “wiped out” by the market slump. He claims the assets are now worth “close to their debt value” and says a mezzanine loan covering the bank’s equity would be “worthless from day one”.

The properties included in the sale are the Gaiety Centre shopping development on Dublin’s South King Street, two office blocks in London, the Metquarter shopping centre in Liverpool and a redevelopment property in Surrey, which is 50 per cent owned by Green.

These formed part of Anglo’s €640 million select geared property fund. The portfolio also featured a €25 million stake in the Arnotts department store group, but that has been excluded from this sale as it is not an investment property.

AIAC had hoped to raise €225 million from investors, when it launched the fund in 2007, at the peak of the property bubble.

However, informed industry sources estimate the pensions and investment unit missed its target by more than 50 per cent. The unsold equity for that fund sits on AIAC’s balance sheet. The remaining properties slated for sale are a hotel in Cologne, a shopping centre near Düsseldorf, an office building in Bristol and an office block in London’s Square Mile.

It is understood Anglo prefunded these buildings with the intention of selling on the equity to private clients through its pensions and investments subsidiary.

But the bank’s strategy was thwarted by the onset of the credit crunch and the equity remains on AIAC’s balance sheet.

Anglo is keen to remove this exposure and has been in talks with Green for at least six months.

When news of the potential transaction emerged last October, it triggered widespread criticism in the market at Anglo’s failure to conduct a bidding war for the real estate.

Signature Capital, a Dublin-based investment firm led by former bankers Ciarán McNamara and Enda Woods, has confirmed it submitted a “competitive” offer for the properties. Anglo declined to comment on the portfolio sale, citing commercial confidentiality. However, a source close to the bank claims the Green deal will closely resemble the AIB disposal of the Kallakis properties. AIB escaped a massive loss on that portfolio by offloading properties to offshore vehicles linked to Green.

Rather than suffering a potentially devastating writedown, the bank sold the assets at similar prices to those paid by Achilleas Kallakis, a Greek businessman now under investigation by UK authorities for alleged fraud.

It is understood the senior debt on both of those transactions is non-recourse, meaning there is no risk to Green if the assets sink below the value of the loans. It is unclear if Anglo also agreed to advance the mezzanine loan on a non-recourse basis. But concerns are mounting over the banks’ determination to avoid large write-downs on property investment loans that do not qualify for Nama.

According to ESRI chief economist John Fitzgerald, the warehousing of such loans could imperil the Government’s salvage operation of the banking system.

Mr Fitzgerald said the current environment presents a “once-off opportunity to clean up the banks” and warns “we will have failed in that objective if there are continuing doubts” over toxic property loans.

He claims this is an important issue for the regulator and stresses “we need to have the loss on all these assets now”.

But the Financial Regulator maintains it is “engaging with the banks and pushing them to recognise more realistic provisions on their portfolios.”

“This has involved challenging both weaknesses identified in their impairment processes and through addressing with them our views on the treatment of individual loans.

“This has been reflected in the significant changes in the level of provisions taken by the institutions over the last year as reflected in published accounts and management statements. This process is ongoing. “