Monday, December 13, 2010

Two California Plaza - Update your models to "PENDING MODIFICATION"

Located in the heart of the U.S.'s former subprime operations headquarters (#3 tenant was Aames), Two California Plaza ($470mm senior in GSMS 2007-GG10 representing 6.30% of the deal) long ago depleted debt service reserves and was coasting on cash from the sponsor (Maguire/MPG). As of the end of the first half of this year, it's NCF DSCR was at 0.92x with 84% occupancy - not horrible, considering, but most investors have been angling for this property to get modified.

Earlier today David Weinstein (MPG CEO) stated
Two California Plaza as part of its core set of assets, and expects to have the opportunity to explore various potential options for doing so once the asset is transferred into special servicing. At this time, we do not believe that funding current and projected operating deficits at this asset with the Company’s precious unrestricted cash is in the best interests of our stockholders.

It originally traded at the peak at a 5% cap rate, roughly. If you apply that same cap rate to today's cash flows, you get a value of $507mm, still above the senior. That is too optimistic a view, in my opinion, but it's not horribly off either for a trophy asset like this. A 6% cap rate dings the first mortgage.

The maturity date is not until 2017, and the coupon is 5.5%. Not clear on what type of modification they are after, but it is definitely headed that way.

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