Canary Wharf Finance II, one of the highest profile CMBS deals in Europe reported results yesterday and showed that debt-service-coverage ratio (DSCR) went up to 1.30 from 1.18, mostly due to an increase in rents.
We believe that this can be seen as a positive in the short term, but in the long term the re-letting of the Lehman Brothers space at 25 to 30 Bank Street remains a great uncertainty, Barclays Capital analysts said in a note published on the deal.
The results, analysts said, do not specify that Lehman has defaulted under its lease obligations, which means that AIG has not been forced make any payments under it's guarantee.
The majority of this space has been sub-let by Lehman to Nomura International for a two-year period.
However, uncertainty of Lehman's continued payments under its lease and the possible re-letting of the space have affected property values in the seven-building collateral pool.
Barclays said that the collateral pool declined by over 24% in the past six months to £2.9 billion. Values are down almost 29% from the sixth tap issuance in March 2007 and almost 32% from the peak in March 2008. The value of the 25-30 Bank Street property, for example, declined by 54% to £415 million ($598 million) from £900 million at mid-year, even with an increase in rent to £54.7 million from £42.6 million.
Rents are up by almost 11% from mid-year 2008 to £228.2 million, Barclays analysts said. This is mostly as a result of the fixed step up in the Lehman Brothers lease. A further 74,000 square feet of space will become vacant in One Canada Square, as three tenants have given notice since year-end. This will increase the vacancy from 1.1% to 2.5% if no other tenants are found before lease expiry.