JPMCC 2008-C2 - The Promenade Shops at Dos Lagos

This $123mm loan finally liquidated after going delinquent the same year it was sold to the market in JPMCC 2008-C2, resulting in a >100% loss and wiping out 12 tranches in the process. The property sold for $29.7mm in gross proceeds, but that was only enough to cover the servicer advances, selling costs,  and a portion of the ASER. The remaining $10.8mm of ASER was left unpaid.

Barclays has an execellent summary out about it with links to the other big losses in recent months, Silver City Galleria and Tri-County Mall.

For previous stories we wrote on this deal, click here.

And, yes, because this JP deal wins the worst CMBS Deal Evah award, we will once again display an image of JP Morgan's namesake expressing his feelings about the loan.

When I find the originator at my bank who made this loan, I'm going to gut his belly open like the pig he is (exhibits thrusting motion of knife at hip level) and place his head on a pike out front of the office.   -misattributed to J.P. Morgan

Westin Portfolio still trying to move markets, Again

A bankruptcy judge dealing with the Westin Portfolio (JPMCC 2007-C1 & JPMCC 2008-C2) has ordered a 0% interest rate and a 15-year extension! I mean wow! I'm pretty sure that is unprecedented in the CMBS market, although I haven't read all the sell-side research that I'm sure has been published on it the last couple of weeks. Surely that will be overturned.

This was in the WSJ a couple of weeks ago (I'm still catching up, give me a break).

You may think I'm joking about it moving markets, but when it defaulted in 2008, CMBS was all of a sudden all over the MSM and the head of Citi's CMBS research was on CNBC talking about it.

We've previously posted updates on this loan here, here, and here. You might actually recall it because it defaulted in 2008... just 8 months after it was originated.

Another AJ takes a shortfall

CSMC 2008-C1 AJ was hit with a shortfall in September. I think this makes for the 4th AJ shortfall?

LBUBS 2006-C7, GECMC 2007-C1, JPMCC 2008-C2, and now CSMC 2008-C1 - am I missing any?

Comings and Goings

CREConsole reports that Highland Mall in Austin (JPMCC 2002-CIB4) and Woodfield Corporate Center in Schaumburg, IL (NYLIM) are both going down. They're both interesting stories. Woodfield Corporate Center is owned by GE's Pension Fund and Lincoln Properties.

We previously commented on the fun lawsuits at Highland Mall between Dillard's and the owner - the departure of Dillard's will put the mall under officially and trigger co-tenancy clauses that will help bury it. CREConsole also noted that the mall was formerly a joint venture between Simon and GGGP - is that a harbinger of some sort?



Interest shortfalls continue to creep up. In fact, last month, the bonds that we own with interest shortfalls doubled. JPMCC 2008-C2 and CSFB 2005-C2 both experienced interest shortfalls at the AJ level. The LBUBS 2007-C1 AJ shortfall from the prior month apparently cured, albeit that might be temporary.

There are around 12k CMBS bonds out there, roughly, and currently 1,810 are experiencing interest shortfalls. That kind of puts in perspective.


Kilroy Realty (KRC), and yes I thought that was the name of the the thing Matt Damon put on his neck to attract Ellen Barkin in Ocean's 13 (that was a Gilroy though, it turns out), and no I have no idea who they are but I'll look into it, raised $250mm 10-year unsecured debt at +325 bps. That makes $7.35 billion across 18 transactions raised thus far in 2010!

Tangle Up In Blue - CRE Investors wth Big Yachts

The 2008-C2 deal has since added another large delinquency to its list of problems. Regency Portfolio is a 60-day delinquent $25 mm loan on 20 properties mostly located in Iowa. The sponsor is a CRE firm run by two brothers (Rob and Jamie Myers) who actually come across as rather seasoned regional CRE investors and developers. They had multiple business offshoots, almost all in Iowa, that ran the gamut from shopping center development, to resi developments (largest home builder in Iowa). They got overleveraged, and spent too much time at the Resi trough, and just got caught up in the general hype that has crashed our dear market...

They've since had to layoff over 100 employees, defaulted on multiple loans, and been hauled in to court losing numerous assets in the fray.

They also owned a boat named the 63' yacht, RegenSea, which brings back memories of another CRE investor who defaulted on a slew of loans - Hurley Booth (Jr.), who owned a 41' footer down in Tallahassee named the ContingenSea. What cute boat names.

Hurley Booth missed some of the limelight when he defaulted on virtually all of his loans at once, because this all happened in late 2007 and early 2008 - right when the news was focused on MBS Companies (Michael B Smuck). Hurley owned a number of student housing complexes around Tallahassee and they are mostly REO now, although Midland has been a little slow to make that move on the loans it controls - not sure why. The loans were spread across three deals: FUNBC 2001-C4, JPMCC 2005-C13, and JPMCC 2006-C14. The Booth website has the tagline, "Building a Legacy" - surely they could've come up with something less ironic by now.

Do you know a CRE investor that owns a big yacht? Let us know and we'll see if they're behind on payments. ;-)

JPMCC 2008-C2 & JPMCC 2007-C1 Appraisal Reductions

The fact that there were appraisal reductions related to the Promenade Shops at Dos Lagos and the Westin Portfolio (in both JPMCC 2007-C1 and 2008-C2), which were so widely reported in November they helped move the market to historical wides, was no surprise. However, the ASER calculation was off by a $100,000 on the Promenade Shops loan - a mistake that you really don't expect to see. It is a rather simple calculation.

Keeping in mind the '08 deal in particular was a small deal dominated by several large weak loans, the interest shortfall reached high into the capital stack effecting as high up as the A-rated (orig. rating) F class (higher if they stick to the incorrect calculation - there has not been a comment on the error yet...). This is significant - the subordination rate on this class is over 9% (3x historical losses) and it's already being hit with shortfalls. Again, it was a weak deal, a small deal, and a chunky deal, but a significant event nonetheless.

The 2008-C2 deal has since added another large delinquency to its list of problems. Regency Portfolio is a 60-day delinquent $25 mm loan on 20 properties mostly located in Iowa. More on this later...

The whole story is worth putting up the picture of the man, J.P. Morgan, with a knife in his hand ready to cut out the entrails of the poor originator who made these pathetic loans in the first place.

Westin Portfolio - Everythings okay, nothing to see here, keep moving people

Two big loans missed part of their October mortgage payments, resulting in a 20% delinquency rate on a rather small CMBS deal that was the worst of 2008. It wasn't a surprise that these particular loans failed, but rather that it happened so quickly (even that was just a little surprising). The other big surprise is how badly it affected the market - the head of CMBS research from Citi was on CNBC last week for pete's sake.

Commercial Mortgage Alert reported on Friday that the owner's of the two Westin hotels were attempting to raise capital and cure the default, but they also have mezz debt on the properties and the senior mezz holders (Ashford Capital) have stated they will cure it within 60 days and take over the properties if the owner is unsuccessful. So the mechanisms in place are working, and the loan will likely cure for the time being. The Arizona Westin still seems like a weak asset to me, but maybe it will right itself.

Delinquent loans actually moved the rest of the market...

The story on the two CMBS loans, while not trivial, actually helped push the rest of the market down. I don't think its a huge surprise two loans are having issues, although it is a bit soon, and it really is a big deal that 20% of an 8-month old deal is delinquent and likely to default.

Reading through the description of the Promenade in the prospectus (not the hard numbers, the glossy qualitative comments that are supposed to sell you on the loan) you can't help but wonder... It's a retail life center development, with a residential component, ... and a class A office components, a senior housing component, and well, what else can we throw in there, how about some resort stuff, a golf course, and, why not - a nature preserve. Instead of having a strategy, let's just pick every property type and throw it in the desert, and see if it'll work. While we're at it, let's use this strategy to build in 10 different locations, and literally spread them out from the East to West coasts and everywhere in between. We have a test-case.

The other loan is on two Westin hotels. Obviously hotels have got to be hurting in the current environment - I'm quite literally staying at a hostel in a couple of weeks (Yes, that is not a misprint, it is a HOSTEL, with an "S", and no, I didn't pick it and I'm arguably not really young by most people's measuring stick, but that's where I'll be sleeping nonetheless). One of the Westins in question is on Hilton Head and has beautiful ocean views - despite any short-term cashflow issues, it's a joy to stay there. The second collateral property is in the desert (Arizona) and derives at least half its revenue from corporate travel (I assume these are mostly conferences, given the location) - when the deal was issued, Moody's noted they didn't have enough meeting space, and the sponsors started building out more. Talk about a bad plan with bad timing.

Anyway - the whole market moved wider on the news. I can't find any other reason. Everyone's talking about it. Nothing changed politically.

*I'm pretty sure that's a knife in JP's hand in the picture, and that kind of freaks me out, but not as much as it should whoever just drug his fine name through the muck.