Lloyds to offload $2bn in bad loans on distressed property developments

LLOYDS International is selling more loans, worth about $2 billion, on distressed property developments.

LLOYDS International is selling more loans, worth about $2 billion, on distressed property developments, which were written before the global financial crisis by its subsidiary Bank of Scotland International.

The debt involves loans on properties across Australia, including the DFO in Spencer Street, Melbourne, now known as the Spencer Street Fashion Station, which was owned by the cash-strapped Austexx Group and was placed in the hands of receivers last year with debts of $540 million.

Others loans include those to residential property ventures owned by Russell McCart's now-collapsed company Meridien Airlie Beach and a development at the Pentridge prison site in Melbourne.

"We continue to look at a number of ways to help us deleverage our non-core assets, freeing us to focus our time and capital on building our core businesses," BOS International's business support unit head Peter Shear said.

The sale, to be undertaken by Fort Street Advisers, comes after the Australian arm of British giant Lloyds Banking Group sold impaired BOSI loans worth $1.6bn in November last year on distressed Gold Coast and New Zealand properties for about 35c in the dollar.

It was believed to be the first significant sale of large tranches of commercial property debt to be made in Australia since the global financial crisis.

A consortium involving Canadian private equity firm Brookfield and US investment bank Goldman Sachs purchased the New Zealand loan book, worth about $1bn, while the remainder of the debt on Gold Coast property was purchased by the Morgan Stanley Real Estate Fund.

The Gold Coast debt sold to MSREF included loans on about 14 properties, including projects such as the Niecon-backed Oracle Broadbeach twin-tower development, which fell into receivership late in 2010, as well as the Southport Central project, by failed developer Jim Raptis.

However, not all the loans are on distressed projects.

For instance, Juniper Group's Soul apartment project, which is also among the loans sold by BOSI, is not in receivership.

Like some other banks, BOSI is distancing itself from lending on commercial property development in Australia.

Instead, it will focus on its core business, which includes corporate lending to major property groups and asset finance.

Last month, the Australian arm of Lloyds Banking Group posted a $1.2bn loss for last year as poorly performing commercial property loans undermined its bottom line.

Lloyds International made an operating profit of $403m for the year but had to write off $1.6bn in commercial property loans.