It suggests the value of the properties themselves could be even more deeply discounted.
The offices are owned by US private equity giant Blackstone.
It bought a number of prime Dublin offices in 2020 from Starwood, which in turn provided funding to Blackstone to help fund the acquisition. Starwood secured its loan over a total of 12 properties in Dublin.
At the time of Blackrock’s €535m purchase of the Dublin offices, the portfolio of properties included the Iveagh Court, the Watermarque Building, 29-31 Adelaide Road and 75 St Stephen’s Green.
They extended over a combined 600,000-plus sq ft of space and apart from office space included some retail units and 45 residential units.
The remaining portfolio now includes seven properties, following some asset sales in 2021 and 2022.
Starwood European Real Estate Finance, together with subsidiary Starwood Property Trust, provided finance for the sale to Blackstone, by participating in 50pc of the mezzanine loan amount and giving the Starwood group a net commitment of just over €35.1m.
As of the end of September this year, the outstanding balance was €25.9m, secured against the remaining seven properties.
Starwood European Real Estate Finance told investors during the summer that the underlying assets are “well tenanted, albeit certain assets are expected to require capital expenditure to upgrade to Grade-A quality to retain existing tenants upon future lease expiry events”.
It added at the time: “The loan remains in compliance of its third-party senior loan facility and the group’s mezzanine loan facility, however given the persisting challenging market dynamics, the group is working closely with the sponsor, a very large institutional asset manager, and a leading global valuation and advisory firm to identify future capital expenditure needs, funding sources, exit values and the business plan to exit.”
Since then, Blackrock has provided new operational updates and the Starwood European Real Estate Finance board has evaluated “various business plan scenarios and the uncertainty related to these scenarios”.
“As a consequence of this new information, combined with the challenging local office market dynamics, the board has determined to provide for a 50pc impairment of the company’s loan, equivalent to €12.9m,” it told investors on Monday.
“Nevertheless, the board and the investment adviser consider that there are a wide range of possible outcomes whereby the loan may have a lesser or greater degree of recovery due to the ongoing uncertainty related to the various business plan scenarios,” it added. “The investment adviser will be actively managing the position to maximise the opportunity for value recovery.”
As of the end of August this year, Starwood European Real Estate Finance’s net asset value (NAV) was £203.7m and NAV per share was 105.02 pence. After adjusting for the impairment of the Irish office loan Ireland loan, the adjusted NAV is £192.8m and adjusted NAV per share is 99.43 pence as of the end of August.
The vacancy rate in the Dublin office market remains high, despite signs of improved demand for high-grade offices from tenants this year. The vacancy rate is 18pc when so-called grey space, or sub-les from existing tenants, is included.
