Dunedin’s huge industrial property portfolio is in severe cashflow difficulties.

The Dunedin Property Industrial Fund, which owns the Industrious portfolio made up of assets bought from Brixton, Carisbrooke, Workspace and Edinburgh House, ‘urgently’ needs short-term working capital.

The value of the portfolio, which fell from £631m last September to £521m in June has breached the terms of a ‘super senior’ loan made by the Royal Bank of Scotland ‘such that [the assets] are less than their respective contingent, prospective and actual liabilites’. The value has been hit not just by the severe downturn in the market but also by the introduction of rates on empty property.

The news emerged earlier this week when a notice was issued to holders of the commercial mortgage-backed securities issued by RBS, which securitised its loan in October 2006.

The amount outstanding on the bonds is £472.7m.

But there are also junior mezzanine loans secured on the portfolio, which in 2006 totalled £143.5m.

Today, the RBS vehicle that issued the bonds, Epic Industrious, said it had been advised by the Dunedin fund that it was considering a ‘longer-term’ solution to its cashflow problems.

This may involve the junior lenders carrying out a debt-for-equity swap; it will require a significant amendment to certain covenants, including the loan-to-value and interest cover ones; and it will also require an additional credit facility of up to £11m.

The Dunedin fund is able to access £4m under the existing lending structure, which it said ‘need to be made available as soon as possible, and in any event by 15 September 2008’.