German investor Develica Deutschland (DDL) has breached the loan to value covenant on its second largest property portfolio, Bluestar, consisting of three office buildings totalling 80,000 m2 in Bonn, Munich and Stuttgart.

'As a result of the breach of covenant and as required under the loan agreement, the group has been asked [by the lenders] to rectify a breach by way of equity cure which it will be unable to do due to insufficient funds at a group level,' it said in a statement this week. The required amount of equity is 'significantly in excess of the group's cash balance', it added.

The portfolio is leased to Deutsche Telekom (33,600 m2 in Bonn) as well as to Hewlett-Packard and Daimler and was bought in 2007 from Deutsche Fonds Holding for EUR 266 mln. According to DDL, the three properties have dropped to such an extent that it has 'eroded the equity in its entirety of this part of DDL's property portfolio'.

DDL is currently in negotiations with the Bluestar lenders, but under the terms of the loan agreement the breach could result in a cash trap on the facility which has previously contributed around EUR 4 mln per annum. This, combined with the expiry at the end of March 2011 of the waiver from Citigroup - the group's largest lender - will have a significant negative impact on DDL's current cash reserves.