UK shopping centre owned by private equity forced into receivership

APAM comments in this article from the Financial Times:
A shopping centre owned by private equity at the heart of Theresa May’s constituency has been forced into receivership as the crisis in Britain’s bricks-and-mortar retail threatens highly indebted properties.
The insolvency is one of the first significant collapses among dozens of UK retail property assets bought by opportunistic investors earlier this decade. The high levels of debt attached to these properties mean they are especially at risk of default.
Receivers BDO have been appointed to the Nicholsons Centre in central Maidenhead in Berkshire, two people briefed on the situation said, after it became unable to meet its financial obligations.
The failure comes after a series of retailers — including House of Fraser, Maplin, Poundworld and Toys R Us — fell into administration as they struggled with consumers’ shift to online shopping, along with higher wage and tax bills. Other high street chains have been cutting store numbers, reducing nationwide demand for retail property.
The Nicholsons Centre was bought by Vixcroft, the private equity backed property specialist, and hedge fund Cheyne Capital in 2015 for £37m, according to agents Cushman & Wakefield.
It was financed by a £26m loan from Hermes Investment Management, according to CoStar News, with a loan-to-value ratio above 65 per cent.
The price of the centre three years ago was already less than half the £85m paid by its previous owner, the insurer Irish Life, in 2007.
About 175 UK shopping centres are at risk of a similar fate, according to the property asset managers APAM, after being bought by private equity or other opportunistic owners with large loans between 2012 and 2015.
The centres were bought for a total of £7.5bn, though their value has now fallen, said APAM, which specialises in distressed assets.
Many of these are soon due to refinance, but banks are reluctant to extend new loans against retail assets, while private equity groups do not want to invest more capital. This means the centres risk breaching their loan covenants and falling into receivership or administration. Some are currently on the market at discounted prices.
“This is a big problem for the industry, for town centres, for local jobs,” said Simon Cooke, executive director at APAM.
“We are getting calls from banks and mezzanine [debt] providers in relation to loans they are worried about, asking how to manage once they get into default. This supports our suspicion that this problem is as deep as we think it is.”
The buyers of the Nicholsons centre had hoped to turn around its fortunes with a refurbishment and by redeveloping part of the site; Maidenhead also expects a boost from the eventual arrival of the Crossrail link to central London and Heathrow, expected late next year.
But Next, one of the largest stores at Nicholsons, left the centre this year, while another tenant, Argos, announced its departure last year. BDO have now appointed agents CBRE to sell the centre.
BDO, Cheyne and Hermes declined to comment. Vixcroft could not be reached for comment.
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