Mike Anysley: Anglo Irish chief

Green Property will attempt to recover the equity lost by Anglo Irish Bank on part of its property portfolio if a deal for the bank's UK assets is signed off.

The deal will involve Green sweating the assets in order to add value.

The bank has made huge losses on the portfolio after it failed to syndicate them to private clients and was forced to carry them itself.

The 0% loan by Anglo to Green is said by UK sources to be a "headline" figure being used in the deal structure, rather than the actual interest rate.

Instead, it is understood that the senior finance is on an arms' length basis and is inherited from the previous deals where part of the fund was syndicated. In addition it is rumoured that the length of the loan terms is being ­extended.

The workout option, which Green is to undertake with Anglo and has already begun with a portfolio from AIB, usually takes between seven and 10 years according to investment sources.

One source said that if the European banks were to sell off all of their distressed properties there would be a systemic collapse of the real estate market. The banks lost millions in the 1990s when they were forced to offload properties at the bottom of the cycle. He compared the Anglo deal to Nama "which is one massive workout".

Sources defended the use of non-recourse loans by the banks for the workout deals. "You're taking on something that's underwater. It has to be non-recourse, otherwise you're bankrupt the moment you take it on," one said.

Most of the Anglo properties are part of its 'high risk' Select Geared Property Fund, much of which was bought at record yields just before the property bubble burst. Anglo had intended charging its clients management fees of between 2.4% and 5% of annual rents received per annum over the lifetime of the fund.

''Investors should note that a fall in the capital value of the investment of circa 39% would reduce the value of investor equity to zero, assuming no surplus rental income and no reduction in bank borrowings," the prospectus stated.

Property prices have since fallen by between 50% and 95% depending on asset class. As revealed in the Sunday Tribune last week, Green is in talks with two non-Irish banks in the UK about taking on some of their distressed assets.