The Real Deal New York

Foreign bank’s troubles make waves here

After buying big in city's real estate, Anglo Irish sees properties flounder

February 28, 2009
By David Jones

Go to chart: Anglo Irish’s NY portfolio struggles

On Dec. 3, 2008, senior executives at Anglo Irish Bank assured investors during a year-end conference call that while the industry’s overall climate was beginning to deteriorate, the bank’s critical operations in North America remained strong and would withstand any near-term weakness in the economy.

Tony Campbell, chief executive of Anglo Irish’s North American unit, boasted that more than 99 percent of loans in the bank’s $9.3 billion loan book for the region, spread out among 300 clients, were current. He called the number of impaired loans “negligible.”

“I’d have to say that the team in the U.S. is very alert to the less benign economic trends and the likely impact on their loan portfolios,” said Campbell.

However, court documents and interviews with analysts, attorneys and other key players paint a slightly different picture of Anglo Irish Bank, particularly in New York, which makes up 40 percent of its U.S. business.

In the weeks surrounding the Dec. 3 annual review, Anglo Irish executives were in talks to avert two of the biggest condo collapses in New York since the credit crunch. And, at home in Ireland the bank faced bigger challenges: In the wake of the resignations of its chairman and chief executive amid a personal loan scandal, the Irish government announced in January plans to nationalize Anglo Irish because of a fear that the bank may have a large percentage of bad loans and may be insolvent.

Meanwhile, late last month police and anti-fraud investigators raided the Dublin headquarters of Anglo Irish, seizing computers and other documents. The move appears to be linked to the probe into the deposit and loan swaps that may have masked the bank’s true financial condition.

In New York, the bank, along with Fortress Credit Opportunities and Drawbridge Special Opportunities Fund, filed suit against developer Yair Levy last month to foreclose on a $165 million mortgage on Rector Square, a 304-unit condo at 225 Rector Place in Battery Park City.

Court records filed in New York State Supreme Court show that a November letter from Anglo Irish notified Levy of his alleged default on several payments. Then, in December, construction at Rector Square stopped and the building’s sales office, led by broker Michael Shvo, shut down.

In a letter dated Jan. 27, Anglo Irish demanded $117.9 million in unpaid mortgage payments and interest from Levy, noting that he had defaulted on payments to the Battery Park City Authority.

Anglo Irish officials declined to comment, but according to lawyers the judge on the case was expected to appoint a receiver late last month.

In its foreclosure suit, Anglo Irish noted that Levy also had run into problems at other condo projects. “Levy has, upon information and belief, defaulted on other projects around New York with which he is affiliated and with respect to which he is now being sued,” Anglo Irish claimed in its lawsuit. Levy did not return repeated calls for comment.

On Manhattan’s Upper West Side, Anglo Irish narrowly averted disaster at the Apthorp luxury condo conversion.

In December, Apollo Real Estate Advisors, which provided a $135 million mezzanine loan on the project, called in a technical default for $22.7 million to make up for what it described as “deficiencies” in the business plan.

The move indicated that developer Maurice Mann’s cash reserves and overall financial strength didn’t measure up to the contractual requirements of the loan. Mann filed suit against Apollo and Anglo Irish, which provided a $385 million first mortgage on the property. He claimed that the two lenders had breached their contracts and were unjustly trying to call in his building loan. The case was settled in January when Mann stepped down as managing agent of the Apthorp and the Feil Organization was brought in by investor Lev Leviev to help create a new business plan for the property.

On the whole, Anglo Irish is reporting to be in fine shape. According to Foresight Analytics, Anglo Irish reported $424.6 million to the Federal Reserve Bank in outstanding mortgage loans through the first nine months of 2008, with no delinquencies.

Matthew Anderson, a partner at the Oakland, Calif.-based firm, said he’s skeptical that any foreign lender could have 100 percent of their loans current given the economic climate.

“I have a hard time believing these figures are so low,” said Anderson, who has not specifically analyzed Anglo Irish’s loans. He noted that U.S. delinquencies on construction loans averaged 9 percent during the period, while condo construction delinquencies were closer to 20 percent.

Meanwhile, in December, Anglo Irish’s chairman, Sean FitzPatrick, and chief executive, David Drumm, were forced to resign after investigators discovered FitzPatrick had hidden more than $123 million in personal loans from the board of directors.

And, in January, the Irish government’s move to nationalize the bank was followed by an investigation after Dublin-based Irish Life and Permanent admitted its involvement in a scheme to prop up Anglo Irish’s fiscal-year 2008 balance sheet with a short-term deposit of $9.6 billion.

New York holdings

Early on, Anglo Irish invested in relatively safe hotel and commercial office properties in New York, Chicago, Boston and other U.S. markets.

In 2004, the bank purchased its first New York property, a 372,000-square-foot office building at 222 East 41st Street, for $210 million on behalf of Zeta-Ceres, a fund the bank created to acquire U.S. real estate assets. Three years later, Zeta-Ceres sold the property for $319.8 million to Wells Real Estate Investment Trust, a Georgia firm. Anglo Irish helped finance the deal with a $130.3 million loan.

By 2006, Anglo Irish had purchased the Beekman Tower Hotel and Eastgate Tower Hotel for $151 million on behalf of its Peninsula Real Estate Fund, a joint venture developed by investor Timothy Haskin and Anglo Irish’s private banking unit. The private banking unit provided $49 million in equity, while the bank provided $100 million in debt financing.

The next year, Anglo Irish provided a $110 million first mortgage to SL Green Realty Corp., which acquired a 38-story office tower at 16 Court Street, the tallest in Brooklyn, in a deal brokered by Cushman & Wakefield Sonnenblick Goldman.

While offices occupied the building’s lower floors, observers speculated that the upper floors would be converted to residential condos. But SL Green decided to maintain the building as a commercial office building, launching a $16 million renovation of the tower.

In January, SL Green signed a new 11,000-square-foot lease with architectural firm Van Valkenberg Associates. However, the 284,000-square-foot property still has 69,000 square feet of space available, with asking prices of $33 to $39 a square foot. Asking rents are at least 25 percent less than expected, which could pose a problem for SL Green and, in turn, Anglo Irish. SL Green officials were not immediately available for comment.

One of Anglo Irish’s largest residential deals in New York is the Setai at 40 Broad Street, a 34-story condo tower developed by the Setai Group and Zamir Equities. The project was financed in part by a $140.1 million construction loan provided by a group of lenders that included Anglo Irish.

Sources familiar with the building said 75 percent of the units are under contract and that occupancy is scheduled to begin in the late spring. Still, a November lawsuit by a buyer alleges that the sponsor, 40 Broad, conducted a sham closing on his apartment in June, raising questions about closings in the building.

A Zamir spokeswoman said that Anglo Irish has been fully supportive of the Setai, and said they expect the bank will be fully repaid.

Ron Solarz, executive managing director at Eastern Consolidated, said Anglo Irish is just one example of the overall hubris that caused the banking system to crash.

“The banks just leveraged things up, not thinking the market could turn,” he said. “Nobody knows how bad it could get. We all do sense that there’s more bad news coming.”

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