Daol Asset Management announced on the 14th that it has reached an agreement to receive $505 million (about 735 billion won) as a condition for negotiations over the use rights of the Washington D.C. Union Station, which was condemned by Amtrak. This allows Daol Asset Management to recover its investment principal of $430 million completely and generate an additional revenue of $75 million.
Daol Asset Management invested in a $100 million mezzanine loan bond collateralized by the rights to Union Station in collaboration with local operator Rexmark in 2018. At that time, the estimated value of Union Station was approximately $1 billion, and the senior loan was $330 million. The loan-to-value (LTV) ratio was 43%, which was considered a relatively safe investment in loan bonds.
However, operations at the train station were suspended due to the COVID-19 pandemic, leading to the closure of 112 shops in the station, and since early 2021, the interest payments on the loan bonds have been in arrears, resulting in a state of default.
Wells Fargo, the senior collateral creditor, executed the collateral through a real estate investment company in December 2021. As the mezzanine investment of $100 million faced total loss, Daol Asset Management made an additional investment of $330 million in January 2022 to purchase the senior loan bonds and became the owner of Union Station through the execution of collateral two months later in March.
However, in March 2022, a new legal dispute began as Amtrak, the tenant of the train station, claimed the condemnation rights over Union Station. In the U.S., there have been very few cases where government-mandated condemnation has been revoked, and the compensation price for the asset is determined through the courts. As asset prices plummeted due to COVID-19, Amtrak activated the condemnation rights to acquire the asset at a low price, proposing a deposit of $25 million, which is less than Daol Asset Management's investment principal of $430 million.
Daol Asset Management and local operator Rexmark have been involved in five lawsuits over the past three years, and this agreement allows them to conclude the litigation and recover their investment. Amtrak chose to resolve the potentially more complicated legal dispute that could arise with the Donald Trump administration through direct negotiations.
Daol Asset Management noted that "it is extremely rare for domestic institutions to recover the principal and additional profits from delinquent loan bonds related to overseas real estate investments," and added that "it is significant that the investment was retrieved through litigation with a U.S. government agency."
However, not all lawsuits have been resolved. There is an ongoing legal battle with Ashkenazy, the original owner and borrower of Union Station. Although the court has decided that Daol Asset Management holds the rights to the usage and negotiation authority over Union Station, it is expected to take about 1 to 2 years until the final ruling.