11/14/2008

Few Big CMBS Loans Set to Mature in 2009


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CORRECTION: A Nov. 14 table of large CMBS mortgages scheduled to mature next year incorrectly included two loans: a $254 million mortgage to Americold on an industrial portfolio and a $77.2 million loan to Ross Partrich of Redwood Group Holdings on a mobile-home-park portfolio. Both loans have already been refinanced. The loan to Americold, which was subsequently acquired by Yucaipa Cos., was also referred to in an accompanying article, "Few Big CMBS Loans Set to Mature in 2009." ----------

Less than $6 billion of large securitized mortgages mature next year, indicating that the near-term refinancing volume should be relatively manageable even given the virtual shutdown of lending markets, according to a review by Commercial Mortgage Alert. The review examined a subset of securitized loans that potentially could be hardest to refinance - those of $50 million or more that were originated in the past five years. Only 47 first mortgages totaling $5.3 billion fall in that category (see list of loans on Pages 11-12).

The largest borrower in the group, by far, is General Growth Properties. The mall REIT, whose severe debt problems have been well publicized, accounts for one-quarter of the total. Other borrowers with large loans coming due next year include New York developer Joseph Moinian ($382 million) and private-equity firm Yucaipa Cos. ($254 million).

The total is relatively modest - a tiny fraction of the $230 billion of securitization volume last year alone. But the relatively few borrowers that have to refinance next year do face potential obstacles: few sources of credit, sky-high loan spreads, lower leverage and more-stringent loan terms.

"Even though there are not a lot of loans coming due next year, those that do need financing will likely find it extremely challenging and painful," said Manus Clancy, senior managing director of global emerging markets at Trepp, a commercial MBS analytics firm. "Spreads are very wide, and getting financing above a loan-to-value ratio of 50% is very difficult. Borrowers are fortunate that there is a modest amount to compete against, but that is really the only mitigating element right now."

Owners that borrowed in the past five years are the ones most likely to be squeezed by the combination of lower property valuations and the reduced availability of leverage. "The question is, at what level will the lenders be able to refi these borrowers," said Alan Todd, a CMBS analyst at J.P. Morgan. "They will now be looking at a higher cost of debt and lower LTVs. The issue is not 'will there be money available,' but rather 'will there be enough proceeds available to keep them from having to come out of pocket to infuse more equity into the deal.' The gap between what they need and what they can get could be substantial, and I have no doubt that there will be borrowers who choose not to save the property, given those terms. It's hard to tell - a lot depends on how much liquidity there is in the system."

The largest maturing loan next year is a $426 million fixed-rate mortgage to General Growth on a trophy mall in Las Vegas, Grand Canal Shoppes at the Venetian. The loan, which was originated in 2004, matures on May 1. Portions of the mortgage were packaged in two securitizations. General Growth also has to repay a $224.1 million fixed-rate mortgage on its Woodbridge Center mall in Woodbridge, N.J. All told, the REIT has nine large securitized loans totaling $1.5 billion that are maturing next year.

Other large loans include a $292 million fixed-rate mortgage to Moinian on the office building at 180 Maiden Lane in Lower Manhattan, a $254 million floating-rate loan to Yucaipa on an industrial portfolio and a $215 million mortgage to a Developers Diversified Realty partnership on a retail portfolio.

The review tracked securitized loans of at least $50 million that were originated in 2004 or later. The 47 mortgages, which have a combined original balance of $4.9 billion, are either whole loans or participation interests in first mortgages with a total original balance of $5.3 billion. Floating-rate loans were included only if the final maturity, after all extension options, is in 2009. Floaters made up only 18% of the total first mortgages - or $1.1 billion. That reflects the fact that many of the floaters written as the real estate market was peaking in 2006 and 2007 still have extension options that can push maturity dates beyond 2009.

The loans in the review account for roughly 30% of all securitized loans scheduled to mature next year, based on figures compiled by J.P. Morgan. In subsequent years, refinancing volume will increase substantially. The investment bank said that maturing securitized loans will rise from $18 billion next year to $35 billion in 2010 and to $56 billion in 2012. They will then taper off for a couple of years before spiking up to $100 billion or more annually from 2015-2017.

With the securitization market frozen up, borrowers will have to turn to other sources to meet financing needs. U-Store-It, which has a $90 million securitized mortgage on a self-storage portfolio coming due next year, has said in public filings that it will consider tapping its revolving bank line, selling properties and/or bringing in partners.

Some borrowers may be able to negotiate loan extensions from special servicers, although the track record for such maneuvers is sparse. "If you're the special servicer, and you're looking at a big loan that's going to have trouble getting refinanced, you might think it's better to renegotiate and extend the loan for another year than have to foreclose," said one veteran CMBS lender.

Experienced borrowers who have well-established relationships with lenders are going to have the easiest time locating new financing, said New York investor Jeff Sutton, who successfully lined up a $285 million loan in September on the retail portion of the building at 717 Fifth Avenue in Midtown Manhattan.

"It was crazy during the last few years," Sutton said. "Even a monkey throwing darts at a map could have made money in real estate. But now we're back to basics, which is good. If you have relationships - if the lenders know you and know that you can create value at a property - you'll be able to get things done. But the guys who just entered the business over the past two or three years are going to have a hard time."

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