AIB forced to take writedown of 85% on US investment

AIB HAS been forced to take an 85 per cent writedown on a US property investment debt.

The bank is one of a group of debt holders led by Winthrop Realty Trust which holds about $300 million in senior mezzanine debt on an 80-acre apartment complex in east Manhattan known as Stuyvesant Town-Peter Cooper Village.

In one of the biggest property collapses in American history, the developers of the project were forced to hand the development back to lenders in January after efforts to restructure debt failed.

Winthrop Realty Trust yesterday said it had entered a partnership with Pershing Square Capital Management to buy the defaulted €300 million loans for €45 million – a discount of 85 per cent.

While it is not clear how much of the debt is held by AIB, the book value of the Irish bank’s stake has been estimated to be in the region of $50 million, although this has not been confirmed by the bank.

AIB declined to comment yesterday.

Other debt holders in the Winthrop-led group are believed to include German bank Deutsche Genossenschafts-Hypothekebank and US financial services company Hartford Financial Services.

The mezzanine loans represent the senior-most mezzanine loan interests in the property. They, along with the $3 billion first mortgage loan secured by the property, are currently in default.

The Pershing Square-Winthrop joint venture has also begun foreclosure proceedings on the property. They intend to convert the apartments to co-ops.

The 1940s development is one of the largest and most iconic housing complexes in New York.

Built by insurance company Metropolitan Life with the help of government aid, the objective was to provide affordable housing to workers and its original function was to house US war veterans.

In 2006, Metropolitan sold the complex to real estate company Tishman Speyer Properties and asset management firm BlackRock for a record $5.4 billion.

Last October, Fitch Ratings valued the East Manhattan property – which comprises more than 11,000 apartments and 56 separate buildings – at $1.8 billion.

Tishman Speyer and BlackRock financed the purchase through a $3 billion mortgage from Wachovia Bank and $1.4 billion of mezzanine debt.

Tishman and BlackRock intended to fund the debt by refurbishing apartments and raising rents, but their plans were curbed by a falling rental market and the city’s strong rent-protection laws.

Last October, the New York Court of Appeals ruled that rent increases on some of the apartments in the complex were illegal.

Winthrop said yesterday the company would engage with the local community in order to bring long-term stability to the property and its residents.

“We understand the importance of this property in providing housing for moderate income New Yorkers. Among our goals is the continued supply of affordable housing for its residents for years to come.”