IGIS Asset Management has decided not to extend the maturity of its overseas real estate fund that invested in the Trianon building in Frankfurt, Germany. As values plunged during the COVID-19 pandemic and the recovery has remained sluggish, a principal loss appears inevitable.
According to the investment banking (IB) industry on the 23rd, IGIS Asset Management will proceed with the liquidation of the overseas real estate fund "IGIS Global Real Estate Investment Trust No. 229 (Trianon Fund)." The fund's maturity is on the 31st of next month. Instead of holding a beneficiaries' meeting to extend the fund's maturity, the company decided to liquidate as is.
The Trianon Fund is an overseas real estate fund established in 2018 with a total size of 370 billion won. It was sold roughly half public and half private, mainly to individuals and institutional investors. However, DekaBank, a key tenant responsible for more than half of the building's rental income, did not exercise its lease extension option, undermining the building's profitability.
Afterward, IGIS Asset Management held a beneficiaries' meeting in Oct. 2023 and extended the fund's maturity by two years. In the process, it signed a "standstill" agreement with the syndicate lenders and moved to normalize operations, but an event of default (EOD) on the loan agreement ultimately occurred in Jun. last year. As even the special-purpose company (SPC) set up to operate the fund entered insolvency proceedings, the authority to sell the asset transferred to the lenders.
However, even if the fund is liquidated, rights through the SPC equity will be placed in trust with a local German court. For this reason, if the Trianon building is sold at a price higher than the remaining loan balance, there remains a possibility that the surplus will be distributed to investors.
However, the prevailing view in the market is that, with European office building values having fallen sharply recently, it is unrealistic to expect any residual distribution. Typically, when a sale is led by the lender group focused on urgent loan recovery, price bargaining power weakens, making it difficult to fetch full value.
An industry official said, "Since the COVID-19 pandemic, weak office demand combined with rising interest rates has slowed the recovery of commercial real estate prices in Europe."
According to IGIS Asset Management, the fund has paid out 30.8 billion won in dividends to investors so far, equivalent to about 16.4% of the initial principal on a public offering basis.
In a disclosure regarding the decision not to hold a beneficiaries' meeting, IGIS Asset Management noted, "Even if the fund's maturity elapses, it is possible to proceed with liquidation procedures following completion of the asset sale," adding, "We will continue to provide thorough guidance on key matters such as the asset disposition process through ad hoc disclosures and management reports."