Brookfield to Acquire MPG

Nomura reported this morning that MPG is being taken over by a Brookfield-controlled entity named DTLA at $3.15 per share. This likely a huge positive for CMBS where MPG is a sponsor for some of the underlying loans. MPG road the leverage wave right up until the peak, and when the bubble burst they (and they're founder, of the same name) were one of the hardest hit CRE investors. Not only were they overlevered, they had the highest concentration of residential mortgage companies (servicers, originators, etc.) as tenants amongst REITs.

The potential negative, as Nomura points out, is that it may give DTLA more leverage to work out modifications on the problem assets. 

Exposure:
Wells Fargo Tower (GSMS 2007-GG10), Gas Company Tower (JPMCC 2006-LDP8, WBCMT 2006-C28) are listed as the most likely to see modifications. The other exposures are 777 Tower (BACM 2006-6), BoA Plaza (MSC 2004-HQ4), Ernst & Young Tower (WBCMT 2004-C12), and then a couple properties not in CMBS - KPMG Tower and 601 S. Figueroa.

Stuy Town Tenant Group cuts out the middle man

The Stuyvesant Town-Peter Cooper Village Tenants Association tenant group wants to cut out the Special and deal directly with bondholders. Here is the letter to tenants, and here is the letter to CW Capital, the Special.

The group, which has been working with Toronto-based Brookfield Asset Management Inc. (BAM/A) on a plan to convert apartments into condominiums and pay off bondholders, said that CWCapital refuses to consider it. “It has thus far been unwilling to work directly with us and to share the information necessary for us to formalize a bid in advance of opening up the property to a formal sale process,” the association wrote. “CWCapital’s overall response to our attempts to engage it has been to stall and delay.”

Although some saw this as a negative, it clearly shows there is a bid for the property that could result in a $0 loss to the Trust. The lawyers are definitely taking their pound (or ton in this case) of flesh first though.

World Financial Center evacuated due to suspicious package...

GGP Spinoff, Rouse, to be a B-Mall Consolidator

WSJ reports:

"Rouse is being created to be a B-mall consolidator," Mr. Mathrani said in a December interview at General Growth's Chicago headquarters. "They can actually be a viable, strong B-mall company. We're putting assets into this business that are good assets."

Brookfield to shore up Rouse:

As a 40% shareholder in General Growth, Brookfield will own 40% of Rouse upon the spinoff. Brookfield also has pledged to backstop a $200 million secondary offering of shares by Rouse early this year, meaning Brookfield will purchase any shares not bought by other investors.

Stuy Town tenants back in play

Crain's reported yesterday that Brookfield (who happened to raise their hand last week when we asked who had a few billion dollars of cash looking for a home in distressed real estate deals) is teaming up with tenants to make another push to buy the property. You'll recall that the tenants actually were prepared to pay north of $4 billion when MetLife original sold the property in '07, and the NY Times, at least, believes that bid will be at least the $3 billion owed on the senior mortgage.

Even if you correctly assume that the NY Times doesn't know what it is talking about and is pulling numbers out of the air that make good headlines, this is still good for the AJ and better bonds. In fact, the faster the resolution comes the better - we should see interest shortfalls get cured and the deals can stop accruing fees, not too mention the legal settlement, potential effects of an assumption or early payoff, etc. The big negative is what the loss to investors is going to be, but it's not going to be as bad as what is priced in to the bonds right now (guessing the C30 AJs are in the 50s, maybe L60s at best).

Brookfield buys out Four World Financial Center

Brookfield bought out the remaining 49% interest it did not already control of World Financial Center at approximately $270 psf, and simultaneously agreed to a 767k sf lease (40% of NRA) with BAML.

World Financial Center ($310mm)

Bloomberg had an article noting that BOA was only keeping 1/6th of the current Merrill space in WFC 2 and 4; it formerly occupied just over half the 8mm sq ft in the WFC complex. That's really not a big surprise. Building 1 is in CD 2007-CD4 ($310mm) and is currently fully occupied with one big lease (Fidelity National 13.06%) rolling in 2012, and I don't know their status.

1225 Connecticut Ave NW trades @ $900 PSF

Brookfield sold 1225 Connecticut Ave. NW to The World Bank for $900 psf last week, the highest price ever paid in DC according to several news outlets (sorry can't confirm - but it was in the news, so it must be true).

This building was bought by Brookfield and Blackstone as part of the 2006 Trizec transaction and serves as collateral in COMM 2007-FL14 and MLFT 2006-1, along with other properties. They immediately began a $32mm renovation which was mostly completed in 2008, but finalized in 2009, and signed The World Bank as the sole tenant of the 240,000 square feet in 2008.

Jones Lang LaSalle took the property to market several months ago, but The World Bank has had an option to buy it that originated with the 2008 lease. Also, the CMBS loan matured in 10/2008, and the fully extended maturity is now 10/11/2011.

Someone made money - both deals saw some LCF and front-pays trade recently.

CMBS In the News

The WSJ reports on 3 CMBS stories:

Notes the loan is going into a multi-sponsor deal slated for the 2nd quarter.

The owner of the Keystone Summit Corporate Park, private-equity firm Keystone Property Group, recently refinanced the building for $53.5 million, including a $41.5 million first mortgage from Deutsche Bank AG and a $12 million junior loan from Pembrook Capital. What makes this deal stand out is the plan Deutsche Bank has for the first mortgage.

First Ritz to ever default. Ever. Described by a former colleague as 45 minutes into the desert, the middle of nowhere.

The hotel's closure is the latest stumble for the Lake Las Vegas development, which was planned around a manmade lake roughly 15 miles east of the Las Vegas Strip. Developer Transcontinental Corp., led by Ron Boeddeker and Texas tycoons Sid Bass and Lee Bass, began developing the 3,600-acre project in the 1990s to include thousands of upscale homes, three golf courses, a small casino and two resorts. But Transcontinental defaulted on a $540 million loan from lenders led by Credit Suisse and sought Chapter 11 bankruptcy protection for the project last year..

Regarding the MBA default on their building, Petrie calls Kempner a dolt:

The worst part of buying "that stupid office building," Mr. Petrie says, was that it led to emergency cost-cutting that forced the MBA to dismiss some "wonderful people" on its staff. Mr. Kempner, who resigned in 2008, says the board approved the purchase unanimously. "It was not my decision," he says. An MBA spokeswoman declined to comment.

I'm not even going to do an outake of this FT story - the reporter did a poor job writing this up - but maybe this is of interest to someone because it has opinions based on a survey of how various markets will perform (including CDOs and CMBS).

Also in the FT, the Beltway Battle, discusses the attempted takeout by Brookfield for CarrAmerica's DC properties, that Tishman has defaulted on. I initially thought the article was talking about the CarrAmerica portfolios in BALL 2006-BIX1 and CGCMT 2006-FL2, but the addresses listed in the article do not match up.

Rally fizzled on Friday - as it should...

The looser guidance of the IRS drove a rally initially, but I think the market will back up. It's like the market found out a girl that it was hot for had just decided to become a prostitute, and it got excited about the imminent action, but after a roll in the hay has realized it can never take her home to see the parentals. She'll still come in useful in the future though.

Things simply aren't good either.

• CRENews.com had an article out summarizing the rating actions year-to-date: 3,405 CMBS Downgrades, Only 82 Upgrades. Keeping in mind that rating agencies are extremely reactionary by nature (rather than making calls on the future - just wait until we actually have widespread problems).
• PCV/ST is defaulting imminently, along with a number of other high profile loans that are not cashflowing. I'm calling for a December default on PCV/ST with an over/under of 1 month - bets are now being taken.
• European CMBS loans were structured in an inherently weaker fashion in many regards, but also have additional covenants that lead to defaults faster (to protect the investor). That market is unraveling a little ahead of the domestic market. Not too mention there was ruling recently in France that allowed a Lehman-owned office building to pursue a workout strategy - DESPITE the fact that the bondholders wanted to take over the already defaulted loan as would normally happen. They're rewriting contract law everywhere, to the detriment of real estate investors, it is not just a domestic issue!
• The IRS changes its mind all the time. I'll bet a small sum that 10-years down the road we'll be able to look back and talk about a REMIC that was broken up because of some loan mod they decided they didn't like.
  
• Not to mention that some current- and next-pay AAA bond holders are going to be up in arms over the new IRS guidance - They already are.
  
• Will TALF new issue be successful? It has some draw backs that make it even less interesting to investors than the legacy TALF, which frankly hasn't seen much demand because it was structured so poorly (on purpose) by NYFRB.
  
• If new issue TALF isn't successful, we're going to have problems. The first new issue TALF deal should be DDR's - they have $900mm CMBS loans maturing next year, and another $500mm in 2011.
  
• CMBS maturities are nothing compared to banks/thrifts, but some REITs have a lot of CMBS mortgage debt to roll (I still can't believe that idiot, Cramer, would tell you to buy REITs right now). The ones with the largest maturities (all are >$500mm) next year are, in order, GGP, Vornado, DDR, Simon, Colonial, and Regency.
• Looking at REIT CMBS loan maturities over the next 3 years that exceed $1 billion, you end up with a similar list: GGP, Vornado, DDR, Simon, Regency, and Brookfield. Brookfield is an addition to the list, and has the second largest maturity schedule ($3.6billion) due the mortgages it used in the Trizec acquisition back in 2006. It has another $2 billion or so of CMBS loans due after 2012 as well.