Domestic institutional investors established a fund called 'Brooklyn 500 Metropolitan Avenue Senior Loan' with a scale of $133 million (approximately 187.2 billion won) for investment in real estate development projects in New York, which reported a loss of about 24% and will be sold as non-performing bonds.
The loss is a problem, but there are also complaints emerging in the process of selling the non-performing bonds. Some investors have expressed the position that a securities firm that led the bond sale conducted the transaction unilaterally, increasing the loss rate. However, this securities firm stated that these claims are unfounded.
According to the financial investment industry on the 13th, NH Investment & Securities, Mirae Asset Securities, and other domestic institutional investors decided to sell bonds of a loan fund secured by real estate of the Brooklyn 500 Metropolitan Hotel in New York to the U.S. private equity firm Farallon Capital Management. The sale price is $102 million (approximately 143.4 billion won).
HanRiver Asset Management established the fund to lend for the development project of '500 Metropolitan' in Brooklyn, New York, in 2019. The borrower stated that it would use the funds to pay existing loan repayments and stabilize hotel operating costs. The loan period is from May 2019 to June 2023, with an interest rate of 6.13% per annum, and investors expected stable revenue during this period.
However, issues began when the COVID-19 pandemic erupted the following year, causing delays in hotel development projects. The borrower became unable to repay the loan interest, and the fund that lent to them also became non-performing. The non-performing situation continued until the loan maturity date, prompting the lenders to move to minimize losses by selling loan bonds, recently selecting Farallon Capital as the sale target. This transaction was led by one of the lenders, securities firm A.
Including the investment principal, the revenue anticipated by investors and the arrears interest over four years amount to $170 million.
However, the sale price was significantly lower than anticipated, receiving proposals below expectations. Among them, Farallon Capital was initially selected as the preferred negotiator by proposing $121 million. However, during the negotiation process, Farallon Capital made several requests for price revisions, and the final proposal price was set at $102 million. The investors who put money into this fund claim that the loss rate has reached 40% when considering the revenue they originally expected.
Investors unified their intentions to sell the non-performing bonds, even at a loss, but there are differing opinions on the extent of the losses. Some investors assert that securities firm A, which led the bond sale, exacerbated the loss scale, claiming that it was possible to reduce the loss rate from 24% to about 20%, arguing that there was no reason to sell at a low price.
A representative from the lenders stated, "There were offers among those showing intent to purchase bonds that presented much more favorable conditions," noting that "it is true that we signed letters of intent with Farallon Capital before setting conditions, but there were noises from the early stage of negotiations, and the sale price also fell, resulting in an additional loss of 26.8 billion won."
In contrast, securities firm A stated that there was an agreement among the lenders during the negotiation process, and there have not been any negative opinions regarding this transaction among the lenders.
However, conversations among the lenders confirm that there was conflict among them. It appears that there were differences of opinion among investors regarding the scale of the losses that should be tolerated. In response, securities firm A stated that it could not disclose specific details as the transaction has not yet been finalized.