IGIS fund defaults on loan linked to German office

A 370-billion-won ($270 million) real estate fund managed by IGIS Asset Management Co. faces a heavy loss from its investment in Trianon, a landmark office building in Frankfurt after it defaulted on loans linked to the skyscraper, the Korean asset management firm said on Tuesday.

The special purpose vehicle (SPC) used to buy the property for 880 billion won in 2018 is expected to file for bankruptcy within the next three weeks, according to the company.

The vehicle confirmed the default on the loan after it failed to agree on a loan restructuring plan with lenders by the May 31 deadline. Accordingly, the creditors declined to extend the standstill period, during which they did not demand loan repayments.

The so-called Trianon fund was formed in 2018 with contributions from institutional and individual investors.

Last year, it saw about an 80% loss after Deka Bank, which represented 60% of the building’s tenants, did not extend its lease in 2020 amid the office market downturn.

Its moving out led to sharp depreciation in the value of the 45-story building and a surge in its loan-to-value ratio (LTV) to over 65%.

The exact size of losses will be confirmed after its asset disposal.

As the loan ratio skyrocketed, the SPC fell into a cash trap at the end of 2021, in which the lease income was first used to pay interest, with the remainder set aside to provide additional security to the lenders.

At the end of December last year, its LTV shot up to nearly 70%.

In July last year, IGIS Asset decided to sell the high-rise building and extended the fund’s expiration date by two years at a meeting with limited partners in October.

But it has not yet found a new buyer of the property.

Write to Byung-Hwa Ryu at hwahwa@hankyung.com
Yeonhee Kim edited this article.