Mapeley Beta valuation reveals circa 49 per cent rise as value tops £200 million

A new valuation report by Cushman & Wakefield on the high profile 1.18 sq ft Mapeley Beta portfolio commissioned by Special Servicer Solutus Advisors (SA),  reveals a 48.93 per cent rise in value at £200M over the previous valuation by DTZ of £134.29M in early 2012.  In early 2012, SA mandated FI Real Estate Management (FIREM) to undertake an asset management programme on the portfolio following a review of the 16 properties contained within it.

For SA, Managing Director James Bannister added: “I know many people will attribute much of this recovery to a rising market,  but this is not the complete story.  You need to look much deeper than that and understand property and how important proactive management is to CMBS loans.

“Since we were appointed Special Servicer on the loan in 2012, having looked at the assets and studied the valuation, the cashflow and the tenancy schedule, it seemed to us that this was a portfolio to put some hard  work into and improve.   We have seen similar CMBS portfolios that have just stagnated or where asset management work has not been committed, resulting in sales far below original value which created huge losses for noteholders.  The Beta portfolio gave us the opportunity to put our ethos to work and it is loans like this that drove us to set up Solutus in the first place, ensuring that traditional asset management plus hard work on the ground played a vital role.

“We appointed FIREM to the role of asset and property management of these 16 office assets in 2012. We worked closely with them to retain tenants through regearing leases, incentives which have made the tenants invest themselves in refurbishing their office buildings and through taking back leases, refurbishing and reletting the vacated space.

“So, it is much more than market forces that has brought us to this point and to a change in the fortunes of Mapeley Beta.  It is strategic teamwork between the special servicing function and the asset and property management operation which effectively provides one platform to drive this portfolio forward.  We believe that working together with an asset manager is the best platform for a special servicer as it removes the lag in time and understanding.”

Tim Knowles, MD of FIREM, said he believed this was ‘an exceptional performance‘ for a varied regional  office portfolio spread across the UK which had recovered  through investment  of surplus income generated by the strong cashflow of the portfolio committed by the Special Servicer. He adds:  “In addition, we now have deals in solicitors’ hands and ready to complete in the next three months  which this valuation cannot include.  This shows that talking to tenants and understanding their needs is how to work property returns.”

An analysis of the valuation report highlights many examples of asset management work that has improved the individual assets’ lease profile/income and ultimately value.  Three assets in particular  in the North, Wales and South underline the success of the asset and property management strategy:

  • Wellington House in Barnsley with a rise in value of 183.19 per cent due to refurbishment, new M&E, and active marketing and management .  Vacant in 2012 and fully let in 2014 to Grade A tenants.
  • Ty Gwent in Cwmbran with a rise in value of 171.43 per cent. FIREM settled an outstanding dilapidations claim, refurbished the building and it is now fully let.
  • Sussex House in Burgess Hill with a rise in value of 388 per cent.  This major financial market tenant had exercised a break option in 2012 because the building was old and dilapidated.   FIREM worked closely with the tenant to achieve a new lease which enabled the complete transformation of the building to Grade A standards.

Often called the portfolio’s ‘jewel in the crown’,  Buildings 1-3 at the Microsoft Campus in Reading account for 246,000 sq ft  of the total floorspace.  In late 2013, FIREM test marketed the asset for sale, ultimately turning down bids of £100M due to advice received from valuers and agents that together the portfolio is worth more, coupled with a large swap breakage cost to the noteholders behind the loan. Today this cost is 65 per cent less.   The current valuation provides a figure of £108.75M rising from £82M in the 2012 valuation.

The 16 strong  regional offices portfolio lies within The Mapeley II loan, securitised by Deutsche Bank in the DECO 8-UK Conduit 2 CMBS.  In 2012, the portfolio had fallen in value by 51.7 per cent in the six years to January 2012 from £278M to £134.29M when Real Estate Investor Mapeley lost control and the loan went into special servicing with Solutus Advisors.

The Mapeley II loan matures in April 2016.