Saturday, August 15, 2009

Shortfalls Grow for PCV/ST

Peter Cooper (PCV/ST) had been consistently drawing $10 - $12 million out of it's debt service reserve, indicating a January 2010 default date when that money runs out. However, the poor strategy, poor economy, and high costs of litigation revolving around its misguided efforts to evict rent-controlled tenants have all contributed to a decrease in net operating income and cash flow. Now they are pulling out $19 million, leaving just $57 mm at the end of last month, and pegging the default to hit around October.

No one doubts a default is coming, the timing has been important to some investors, but now it's fair to say the timing is less than 1/2 a year by any measure. Now everyone is trying to determine who the mezzanine players will be - will they remain the current holders (some are strong and likely to take a swing at operating the property), will they sell to other operators, or will they all capitulate?

Next up, what is the senior mortgage worth? It's $3 billion outstanding, is in a number of CMBS deals, comprising as much as 20% of one. Some argue it's worth par - the mezzanine lenders are likely to take it over and operate without the legacy issues that plague the current owners, and it has a relatively low LTV of 56% to help insulate it from the insanely high price paid and the recent decline in prices. On the other hand, the one rating agency worth wasting time on, Realpoint, is looking for roughly a 30% loss on the senior mortgage (>$1 billion).

See prior posts, here. Let me know you're thoughts on this loan.

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