Commercial Mortgage Refinancing

Here is a must-read article on commercial mortgage refinancings from Bloomberg.  The article's premise is that mortgages in strong real estate markets, in particular Manhattan, are able to get refinanced, while properties in smaller markets get less lender consideration.   The article used a Vornado-owned Manhattan property's $430 mortgage as a refinance example.  One fact that doesn't make it in the article's introduction is that Vornado paid the mortgage down by $130 million, which of course made the refinance easier.  This level of mortgage paydown would have allowed a refinance in most markets.  The question is in how many markets are property owners going to be willing to add that much equity to refinance a property?  For markets that have not recovered and owner equity gone, I suspect most property owners will take their chances with special servicers rather than putting in additional equity.

The article makes reference to Linen & Things, which I mentioned yesterday (emphasis added):

That may not be enough to bail out the Baybrook Gateway Mall in Webster, Texas, 22 miles (35 kilometers) northwest of Houston. 

A $41 million mortgage on the shopping center, originated by Goldman Sachs Group Inc. in December 2006 and sold as part of a commercial-mortgage bond deal two months later, was handed over to a firm that handles troubled loans because the borrower couldn’t refinance debt that matured this month, according to Fitch Ratings. So-called special servicers determine whether to modify loan terms or foreclose on property owners struggling to make payments.

Baybrook, co-owned by Blackstone Group LP’s Brixmor Property Group Inc. and JP Morgan Chase & Co., is currently working with the special servicer to resolve the finances, Stacy Slater, a spokeswoman for Brixmor, said in a telephone call. The mall lost tenants, such as Linens ‘n Things Inc. which filed for bankruptcy in 2008, she said, declining to comment further.

The article references a property in KBS REIT I that defaulted on its mortgage on January 11th.  I have not yet seen a KBS REIT I filing on this (but I am not sure whether it has to make an 8-K filing).  Here is the paragraph from the article:

A $43.5 million mortgage on One Citizens Plaza, a 224,089 square-foot office building that houses the headquarters of Citizens Financial Group in Providence, Rhode Island, also ran into trouble this month before its Jan. 11 maturity date, according to Fitch. Though the building was 98 percent occupied as of September, the borrower didn’t repay the mortgage originated by Wachovia Corp. in 2006, Bloomberg data show.

“We are just beginning communications with the lender about this loan,” said David Snyder, chief financial officer of KBS Realty Advisors, a private-equity real estate investment company in Newport Beach, California that owns the property. “At this juncture we are unable to predict the outcome,” he said in an e-mail.

There is other good information in the article including noting that the market for CMBS has recovered to its levels of last July, which means new origination.