Litigation Advances in the CMBS markets could lead to Billions being Reclaimed

Ref. Gemini Plc v CBRE & Warwick Street (KS) LLP and Torre Asset Funding v RBS [2013] EWHC 2670 and Citicorp Trustee Company Ltd v Barclays Bank Plc & Ors [2013] EWHC 2608

At the end of 2012, there was an estimated €154bn European CMBS (commercial mortgage-backed securities) debt still outstanding. Of that figure, an estimated €22.8bn was scheduled to mature this year – making the scale of the problem for European, and UK, banks substantial.

After several years of inactivity, perhaps due to a combination of losses not yet being ‘crystallised’, a reluctance to jeopardise relationships which continue to be profitable and a lack of knowledge about when and how such claims can be pursued, the impending maturity for these loans has stirred many into action, and a number of litigations have begun against property valuers to try and recover some of these losses.

In June this year, we saw a claim for approximately £100m brought against CBRE and Warwick Street (KS) LLP (formerly King Sturge LLP) by Gemini (Eclipse 2006-3) Plc. This follows hot on the heels of the approximately €79m claim being brought by Titan Europe 2006-3 Plc against Colliers International.

The size of the Gemini claim reflects the extent of the company’s losses, having had their 36-strong property portfolio collectively valued at £1.23bn, during the first half of 2006, against which Barclays Bank extended a £850.36m senior loan and a £105.24m junior loan. Unfortunately for the joint valuers, a valuation by GVA in March of this year showed that the portfolio’s value had fallen by 68.17%, ie. £838.45m to just £396.5m.

The extent of the potential mistake there, bearing in mind the extreme reliance on the valuation and the liabilities taken on because of it, could be expensive for the joint valuers – who nevertheless have stated clearly:

“CBRE and Warwick Street strongly believe that the valuation, which was undertaken in accordance with industry standards and practice, reflects the market value of the portfolio at that time. They consider that Gemini’s claim is without merit and are confident that it will be dismissed if pursued in court.”

The number of CMBS related cases has stepped up this year, with both Torre Asset Funding v RBS [2013] EWHC 2670 and Citicorp Trustee Company Ltd v Barclays Bank Plc & Ors [2013] EWHC 2608 reaching completion. Commentators believe it won’t be long before we see more claims against negligent valuers in the courts, and many more settled early.

Full judgements are available via the links.

04/10/2013                                                                                                        SRJ / LCB