this story and other national news in the Watch List

MARK HESCHMEYER, EDITOR
AUGUST 12, 2010
WWW.COSTAR.COM
A WEEKLY COLUMN FOCUSING ON DISTRESSED MARKET CONDITIONS, COMMERCIAL REAL ESTATE PROPERTIES,
MORTGAGES AND CORPORATIONS PUBLISHED BY COSTAR NEWS
IN THIS WEEK'S ISSUE:
CRE Outlook Choppy, Uneven for Cities, Property Types and Firms ................................................................................................ 1
$3.85 Bil. Raised Last Month for Real Estate Acquisitions ................................................................................................................ 4
Chase Buys $3.5 Bil. of Performing Multifamily, CRE Loans from Citibank ...................................................................................... 5
$1.2 Bil. Sunwest Sale Finally Closes ............................................................................................................................................... 6
Health Care REIT Enters into JV on 38 Senior Housing Communities .............................................................................................. 6
Florida, Illinois Banks Given 30-Day or Else Notices ......................................................................................................................... 7
Northbrook Bank Expands in Chicago Taking Over Failed Ravenswood .......................................................................................... 8
Fitch Projects Modest Growth for Retailers ....................................................................................................................................... 8
Where Would Retail Be Without Cell Phone Service Providers? ....................................................................................................... 9
Cedar/RioCan Make $53 Million Purchase ...................................................................................................................................... 10
Cash America To Buy 39-Store Chain ............................................................................................................................................ 10
Charter Hall To Sell Two U.S. Shopping Centers ............................................................................................................................ 11
1,000 GM Dealers Planning Facility Upgrades ................................................................................................................................ 11
Macerich Reopens Santa Monica Place as Open-Air Retail Center ................................................................................................ 11
Property Financings ........................................................................................................................................................................ 12
Pentagon to Cut Thousands of Jobs as Part of New Initiative ......................................................................................................... 13
Quad/Graphics To Shut Down Five Plants ...................................................................................................................................... 14
Local Closures & Layoffs ................................................................................................................................................................. 14
Lease Cancellations ........................................................................................................................................................................ 15
Declines in CMBS Property Values ................................................................................................................................................. 15
Watch List: Delinquent Loans Maturing in September ..................................................................................................................... 15
CRE Outlook Choppy, Uneven for Cities, Property Types and Firms
No "V" Here, Industry Expected to be in for a Long Slow Recovery Characterized by Extreme Caution
The near-term outlook for the commercial real estate market may be clouded over concerns that stronger job
creation is needed to support the nascent economic growth, the impact from possible deflation and the winding
down of government stimulus, but its prospects remain somewhat bullish over the longer term. However, most
expect the economy to recover in an uneven fashion, characterized by wide variations among markets, property
types and firms, according to a new crop of CRE outlooks issued this summer.
The good news remains the fact that an accelerating inflow of capital to the commercial real estate market
continues to come from a wide variety of sources, including institutions, foreign investors, private equity and
REITs, according to Prudential Real Investors in its latest U.S. Quarterly Market Perspective. Investors are
attracted by the sector's improved outlook, signs that prices have bottomed and that the foreclosure crisis will not
be as widespread as previously feared, as well as by prospects for more-attractive returns relative to other
investment options.
Still, the outlook varies by segment, Prudential said. Growth in the near term appears to be strongest in the
apartment and hotel sectors because their relatively short lease terms enable them to react relatively quickly to
economic growth. Meanwhile, the industrial, retail and suburban office sectors are likely to rebound much more
slowly because they are more dependent upon the direction of job growth. Some 600,000 jobs have been
created this year, still a fraction of the millions of jobs lost during the recession. As a result, the pace of growth
has to pick up greatly before real estate fundamentals can improve significantly.
VALUE AND MATURITY GAPS IN OFFICE MARKETS
CoStar Group's most recent base case forecast indicates that, for its index of 54 office markets tracked by
Property Portfolio Research, office property values are expected to rebound by about 25% approximately five
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years <i>after</i> their late-2011 trough, said Tiandan Wu, debt analyst for CoStar. However, this will leave them
at 77% of peak values. Only 11 of the markets are expected to regain their previous peak by the end of the
decade. The rest will likely experience a much more drawn-out recovery.
With values down from peak levels for an extended period, there will likely be plenty of borrowers who will have
trouble rolling over their loans. The "maturity gap" represents the difference between future available refinance
proceeds and balloon balances. Consider a sample of loans that originated at the peak and will mature in 2019,
with 70% loan to value and a 30-year amortization period. Based on the forecast's change of values from 2007 to
2019 and the estimated maturity gap, the 54 markets fall into three categories.
Markets in Category 1, such as Boston, Chicago, Houston, enjoy the strongest value bounceback. With an
average value that settles at a new peak higher than the 2007 level, they are most likely to get the green light
when it comes to refinancing.
Markets in Category 2, such as Baltimore, Cleveland, hav eoffice property values that are not expected to reach
their 2007 peaks, but they come within shouting distance of them, and since growth is relatively strong, they
enter the safety zone as well.
Markets in Category 3, such as Detroit, Miami, Hartford, Philadelphia and San Diego are expected to continue to
see a wide gap between values at origination (2007) and maturity (2019), which translates into a maturity gap
that is hard to work out.
EXECUTIVE SENTIMENT STILL CAUTIOUS
Unstable market fundamentals and uncertainty over government policy are among the significant concerns
voiced by senior real estate executives about the economy's tepid performance and the commercial real estate
sector's outlook for recovery, according to The Real Estate Roundtable's Third Quarter 2010 Sentiment Index.
"Uncertainty reigns. Whether it is job creation, unstable capital markets or a volatile mix of current policy and the
upcoming mid-term elections -- investors and businesses are skittish, causing the commercial real estate outlook
to be flat," said Jeffrey DeBoer, Real Estate Roundtable president and CEO. "The good news is that last
quarter's view that commercial real estate markets have stopped falling has been confirmed this quarter and
values for high quality assets show strength. But the overall sentiment is that the industry is in for a long slow
recovery characterized by extreme caution,"
Although a total of 62% of the survey participants reported real estate market conditions today as "somewhat
better" than a year ago (down from 65% in the second quarter), only 19% said conditions are "much better" (up
from 17% last quarter).
Looking forward, 59% of respondents predicted conditions one year from now will be "somewhat better" (down
from 60% in the second quarter), whereas only 20% expect conditions one year from now to be "much better"
(down from 28% last quarter).
For real estate asset values, respondents reported some improvement in expectations, yet emphasized the gap
between valuations for Class A assets and all others. According to one survey respondent, "The market remains
very murky. The few quality assets that do come to market tend to attract rabid bidding, but there's still general
illiquidity."
The respondents also reported that the instability of capital markets remains a significant cause of unease,
although conditions have improved marginally since the previous quarter. One executive noted, "Our concern is
that the pending loan maturities in the next three years continue to outpace the capacity of lenders to provide
sufficient refinance capital. Assuming that the recent 'extend and pretend' practices cannot continue indefinitely,
does this suggest that we are in for another round of value decreases in the commercial real estate sector?"
CRE WILL DRIVE MUNICIPAL CREDITS
While most U.S. municipalities will feel no more than a marginal ripple effect of the commercial real estate
downturn, some municipal issuers will be left more vulnerable to performance pressure, according to Fitch
Ratings in a new report.
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Despite improving indicators, commercial real estate fundamentals are still weak and are expected to remain so
for the short to intermediate term, which has direct revenue inlays for numerous municipalities.
"Municipal bonds most at risk include special assessment and tax increment bonds, along with hotel tax and
sales tax secured bonds," said Eric Friedland, a Fitch managing director. "Cosmopolitan and diverse
metropolitan global gateways appear to be the most resilient, while bubble/bust and rust belt metro areas are the
most vulnerable."
This is reassuring news for general obligation and tax supported bonds in global gateways with a high amount of
multifamily and retail properties such as New York, San Francisco and Seattle. Conversely, tax increment and
special assessment bonds in bubble/bust and rust belt locales with high hotel and warehouse property
concentrations are of substantial concern, namely Phoenix, Las Vegas, Detroit and Cleveland.
Among economies with CRE concentrations, Fitch is most concerned about those concentrated in hotels,
followed by office, retail, and warehouse, with multifamily the most stable.
Ranked from most to least risky, bonds at most risk from a CRE downturn are those secured by special
assessments and tax increments, followed by hotel taxes, sales and other broad-based taxes, and finally general
obligations.
Fitch considers the most cosmopolitan and diverse metropolitan areas (global gateways) most resilient, with
regional hubs less resilient, and resort/retirement, bubble/bust, and rust belt metropolitan areas the most
vulnerable.
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$3.85 Bil. Raised Last Month for Real Estate Acquisitions
Real estate companies and funds reported raising $3.85 billion in July for real estate-related acquisitions. Almost
half of the total raised ($1.85 billion) was by commercial real estate related firms and funds, while pooled
investment funds including private equity and hedge funds raised $1.8 billion, according to data compiled by
CoStar Group.
Vornado Realty Trust in Paramus, NJ, reported the largest amount raised. It announced that it completed the first
closing of its real estate investment fund with initial equity commitments of $550 million (including $200 million
from Vornado). Vornado said it expects to raise total commitments of $1 billion. The fund is Vornado's exclusive
investment vehicle for all real estate and real estate-related investments over the next three years.
Cedar Fair Entertainment Co., a theme parks operator in Sandusky, OH, completed the issuance of $405 million
aggregate principal amount senior unsecured notes. Concurrently with the closing, Cedar Fair entered into a new
$1.175 million senior secured term loan facility and a new $260 million senior secured revolving credit facility.
Cedar Fair used the net proceeds to repay outstanding debt under its previous credit facilities.
The third largest amount came from Teachers Insurance and Annuity Association, College Retirement Equities
Fund (TIAA-CREF), which reported raising $396 million in the past year for its TIAA-CREF Asset Management
Core Property Fund.
10 LARGEST AMOUNTS REPORTED RAISED IN JULY
Sponsor
Vornado Realty Trust
Cedar Fair Entertainment Co.
TIAA-CREF
Brookfield Asset Management
Invesco Realty
Douglas Emmett
Madison International Realty
Prosperitas Investimentos S.A.
Green Courte Partners
Garrison Investment Management
Amount
$550,000,000
$405,000,000
$396,249,116
$315,000,000
$289,600,000
$249,250,000
$187,575,000
$165,000,000
$119,625,000
$103,000,000
On a monthly basis, the group having the most success was Brazilian fund raising money in the United States for
commercial property investments in Brazil. Prosperitas Investimentos S.A. raised $165 million between the end
of June and mid July.
Cole Real Estate Investments also continued to raise approximately $100 million per month through its ongoing
offering for shares in Cole Credit Property Trust III Inc. Last month, Cole Credit Property Trust III also completed
the $310 million purchase the 583,000-square-foot City Center at 555 110th St. in Bellevue, WA. The building is
99.6% occupied, of which approximately 96.3% is subject to a net lease with Microsoft Corp. that expires in June
2024.
Apple REIT Nine in Richmond, VA, netted raising almost $69 million between mid June and mid July. The hotel
REIT, had acquired 11 hotels through the first six months of 2010. Its largest purchase came in January when it
purchased a newly constructed Marriott hotel in Houston with 206 rooms for $50.75 million.
MOST MONEY REPORTED RAISED ON A PER MONTH BASIS IN JULY
Sponsor
Prosperitas Investimentos S.A.
Cole Credit Property Trust
Apple REIT Nine Inc.
Ohio Equity Fund Inc.
Hines
American Realty Capital Partners
TIAA-CREF
Angelo, Gordon & Co.
Inland Real Estate Investment Corp.
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Rate / Month
$165,000,000
$100,000,000
$68,947,933
$57,000,000
$45,900,000
$45,700,000
$33,020,760
$30,116,667
$20,732,513
4
Sponsor
Invesco Realty
Rate / Month
$12,591,304
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Chase Buys $3.5 Bil. of Performing Multifamily, CRE Loans from Citibank
JPMorgan Chase has purchased a $3.5 billion portfolio of multifamily and commercial real estate loans from
Citibank. Terms were not disclosed.
The portfolio, which includes approximately 3,800 loans, are primarily multifamily real estate loans for properties
in California, New York and Illinois. The purchased loan portfolio contains only performing loans on properties
that have shown strong credit performance, according to the buyer.
Chase's Commercial Term Lending business is part of Chase Commercial Banking and specializes in providing
loans for moderately priced apartment buildings in stable markets. About 80% of Commercial Term Lending's
existing $36 billion portfolio is multifamily loans.
"This highly desirable loan portfolio adds strong earning assets in markets we currently serve and valuable
relationships that will provide new origination opportunities," said Al Brooks, head of Commercial Term Lending.
The transaction will reduce GAAP assets by $3.5 billion in Citi Holdings, Citigroup's portfolio of non-core
operating businesses and assets. Citi has been attempting to reduce assets in Citi Holdings. As of the end of the
second quarter, Citi Holdings assets were less than 25% of Citi's total balance sheet. Citi said i9t will continue to
pursue divestiture opportunities.
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$1.2 Bil. Sunwest Sale Finally Closes
Stayton SW Assisted Living, a Portland, OR-based senior living provider formerly known as Sunwest
Management, sold 132 senior living facilities to a joint venture formed by Blackstone Real Estate Advisors VI
L.P., Emeritus Senior Living and Columbia Pacific Advisors.
The transaction, valued at $1.2 billion, involves the acquisition of the properties in exchange for cash, securities
and assumption of debt. Twelve additional properties are expected to close in the near future as part of the same
overall transaction.
The 144 communities consist of approximately 11,769 units. The joint venture's annualized revenues for the total
portfolio approximate $346.8 million, with average occupancy of approximately 79.0% and an average rate per
occupied unit of approximately $3,108.
The sale of Stayton's assets took place as part of the company's chapter 11 plan of reorganization, which U.S.
District Court Judge Michael Hogan approved in July.
The reorganization plan also creates a Trustco entity to manage and eventually sell certain non-senior living
assets, such as apartments, office buildings and bare land. Receiver Michael Grassmueck will oversee Trustco
and liquidate its assets over time as markets improve for the benefit of the estate's investors and creditors.
Properties without equity that are not sold to the Blackstone/Emeritus joint venture or transferred into Trustco
were returned to lenders on the effective date of the plan, which coincided with closing of the
Blackstone/Emeritus transaction.
Health Care REIT Enters into JV on 38 Senior Housing Communities
Health Care REIT Inc. (will form an $817 million partnership with Merrill Gardens LLC to own and operate a
portfolio of 38 combination senior housing and care communities primarily in West Coast markets. Health Care
REIT will own an 80% partnership interest and Merrill Gardens will own the remaining 20% interest and continue
to manage the communities.
Toledo, OH-based Health Care REIT's consideration for its 80% partnership interest in the additional
communities will be a combination of cash and the pro-rata assumption of $249 million of secured debt. Including
the existing Health Care REIT portfolio, there will be $381 million of debt secured by the total portfolio, with a
current weighted average interest rate of 5.4%.
The entire portfolio consists of 4,388 units and is currently projected to generate 2011 NOI after management
fees of approximately $60 to $63 million. "This transaction enhances Health Care REIT's growth potential and
expands our long-standing relationship with a best-in-class operator," said George L. Chapman, CEO of Health
Care REIT Inc. "This opportunity includes all the elements we view as being critical for a successful RIDEA
investment: a first-class operator, high-quality real estate in attractive markets, earnings growth potential above
traditional rents and strong alignment of interests between partners. This strategic transaction is another
example of our ability to source accretive acquisitions through our relationship driven investment approach."
The transaction will take advantage of the structure authorized by the REIT Investment Diversification and
Empowerment Act of 2007 (RIDEA). The partnership will own and operate 13 communities currently owned by
Health Care REIT valued at $307 million and 25 additional communities currently owned by Merrill Gardens and
its affiliates valued at $510 million.
The transaction is anticipated to close in September.
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Florida, Illinois Banks Given 30-Day or Else Notices
The Federal Reserve deemed Progress Bank of Florida in Tampa, FL, and Community First Bank-Chicago in
Chicago to be significantly undercapitalized and ordered both to take Prompt Corrective Actions (PCA). The
PCAs give each bank 30 days to increase their equity through the sale of shares in the banks or be acquired by
another bank.
Separately, Progress Bank of Florida also entered into a written agreement with the Federal Reserve and the
State of Florida Office of Financial Regulation requiring it to, among other things, boost board oversight,
strengthen credit risk management practices, grade the bank's loan portfolio and improve asset quality.
As of March 31, Progress Bank reported assets of $120 million, of which about $15 million was considered
distresses commercial real estate. Its largest distressed CRE category was $8.5 million for construction and land
development loans in nonaccrual status.
As of March 31, Community First Bank-Chicago reported assets of $60 million, of which nearly $10 million was
considered distresses commercial real estate. Its largest distressed CRE category was $4.3 million for
construction and land development loans in nonaccrual status.
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Northbrook Bank Expands in Chicago Taking Over Failed Ravenswood
Wintrust Financial Corp.'s subsidiary bank, Northbrook Bank and Trust Co. acquired certain assets and liabilities
and the banking operations of Ravenswood Bank in an FDIC-assisted transaction. Ravenswood Bank in Chicago
was closed by the Illinois Department of Financial and Professional Regulation – Division of Banking, which
appointed the Federal Deposit Insurance Corp. as receiver.
The Federal Reserve had issued Ravenswood a Prompt Corrective Action order in May.
Ravenswood operated one location in Chicago and one in Mount Prospect and had approximately $211 million
in total loans.
Northbrook acquired approximately $190 million of assets (subject to final adjustments) at a discount of
approximately 12.6% and assumed approximately $120 million of non-brokered deposits of Ravenswood at a
premium of approximately 0.9%. In connection with the acquisition, Northbrook entered into a loss sharing
agreement with the FDIC. Under the loss-sharing agreement, Northbrook will share in losses and the FDIC will
cover 80% of the losses of certain loans and foreclosed real estate at Ravenswood.
"This transaction further complements our strategy of expansion into the city of Chicago and adds a suburban
location in Mount Prospect, a market in which we previously did not have a physical presence," said Edward J.
Wehmer, president and CEO of Wintrust.
As of June 30, 2010, Ravenswood Bank had approximately $264.6 million in total assets; that was down from
$310 million three months earlier. As of the first quarter, about one-third of Ravenswood's assets were
considered distresses commercial real estate. Its largest distressed CRE category was $33.6 million for
construction and land development loans in nonaccrual status.
The FDIC estimates that the cost to its Deposit Insurance Fund will be $68.1 million.
Fitch Projects Modest Growth for Retailers
Fitch Ratings sees increased stability for ratings of U.S. retailers through the end of the year, according to its
summer 2010 Retail Register report. In fiscal 2011, total sales are expected to grow 4% for the 27 companies
under Fitch's coverage. This reflects modest growth in consumer spending coupled with benefits from share
consolidation achieved during the recession.
"Many U.S. retailers used the recession as an opportunity to make changes to their operations as well as take
better control of their operating costs and spending on capital projects to preserve liquidity," said Karen Ghaffari,
managing director at Fitch. "These changes helped retailers build stronger liquidity positions and leaner cost
structures, which have contributed to improved bottom lines."
For the upcoming back-to-school sales period, Fitch expects positive same store sales growth in apparel and
other discretionary categories that are in line with recent trends. This reflects easy comparisons to the prior year
through September 2010 and favorable albeit muted growth in consumer spending.
Fitch expects sales will continue to show year-over-year positive growth through the end of 2010 with retail sales
for the companies under coverage expected to be up 3% for fiscal 2010.
Ratings in the sector fared relatively well through the recession with the ratings of all but one of the U.S. retailers
returning to within one notch of the levels they were pre-recession.
Further rating activity will be driven primarily by sales levels achieved which will be a key factor for profitability
and credit metrics. Market share position will be significant in determining whether a company has been
fundamentally weakened or strengthened by the recession as this will be an important rating consideration.
Discounters are expected to continue to benefit in 2010 from consumers looking to maximize value on all
purchases, including food and consumables as well as general merchandise. While food and consumable sales
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continue to be strong, Fitch expects discretionary purchases in departments like apparel and home to pick up as
the economy improves. This is expected to result in positive low single-digit comparable store sales.
Fitch expects revenue growth for the supermarket operators will continue to be pressured in 2010 primarily due
to ongoing price competition in the sector. Gradual improvement in the pricing environment is expected as the
economy strengthens and consumers show increased willingness to accept modest price inflation.
Top-line growth at drug retailers is expected to remain steady or improve modestly in 2010, with overall industry
prescription sales growth at about 2% annually, offset somewhat by weakness in front-end sales.
Department store sales are expected to be up about 1% in 2010 and 2011, versus Fitch's expectation of a
decline 1% to 2% in 2010 published at the beginning of this year. Fitch rated department stores are expected to
see above industry average growth of 3% in 2010 and 2% in 2011. The improved outlook represents year-todate performance, with first-quarter revenues up 4.8% and second-quarter results expected to be up 4% as easy
comparisons continue through August. For the second half of 2010, Fitch remains cautious on its outlook and
total revenue growth is expected to be approximately 2%. These expectations reflect sales weighted comparable
store sales growth of close to 5% reported in the first quarter, 3% expected in the second quarter, and a 1%
increase expected in the second half of 2010.
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Where Would Retail Be Without Cell Phone Service Providers?
By: Suzanne Mulvee, Real Estate Strategist
Couple of trends jump out from the retail leasing data: First, frugality is a thriving business; deep discount shops
Big Lots, Dollar Tree, Family Dollar, and Dollar General accounted for more than 1.2 million SF of leasing activity
in the first half of the year. Second, service providers are actively taking retail space, especially cell phone
companies, which as a group accounted for over 300,000 SF of new retail leases.
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Any leasing is welcome when availability rates are near 10%, but to landlords, these tenants don't stand as tall
as traditional retailers. Discount retailers, like Dollar Tree, Goodwill, and Big Lots, are not going to pay top dollar
for retail space. It may also be more difficult to match these tenants up with other retailers to generate crossshopping. The service providers have their own drawbacks - without goods on their shelves, they just don't take
up a lot of room. So these tenants are less likely to plug holes left empty by traditional retailers.
Indeed, few retailers actively leasing space today match the profile of those gone dark (furniture, apparel, and
electronics), which suggests that landlords have few obvious choices for filling dark space.
Cedar/RioCan Make $53 Million Purchase
Cedar Shopping Centers Inc. through its joint venture with RioCan Real Estate Investment Trust acquired Exeter
Commons, a 361,000-square-foot shopping center in Exeter Township, PA, for $53 million, excluding closing
costs and adjustments.
The sales price represents $148 per square foot on 356,000 square feet that was owned or approximately a
7.75% cap rate.
The Philadelphia-area property, completed in 2009, is anchored by a 171,000-square-foot Lowe's Home
Improvement Center and an 82,000-square-foot Giant Food Stores supermarket, with leases extending to 2029
exclusive of renewal options.
The purchase price was funded by a $30 million loan from New York Life Insurance Co. at 5.3% for a term of 10
years, with amortization on a 30-year schedule.
Port Washington, NY-based Cedar's portion of the balance, constituting approximately $5 million, was funded
from its existing secured revolving credit facility for stabilized properties.
Brad Nathanson, a vice president of investments and a senior director of Marcus & Millichap's National Retail
Group in Philadelphia, represented the seller, Exeter JV Associates LP and also procured the buyer.
Cash America To Buy 39-Store Chain
Cash America International Inc. agreed to purchase a 39-store chain of pawn lending locations owned by Maxit
Financial LLC in Washington and Arizona under the names Pawn X-Change and Maxit. Terms were not
disclosed.
"Increasing our pawn lending storefront locations remains a priority for Cash America and we believe that this
acquisition will enhance our presence in these two important markets in the United States through increased
revenue and greater market coverage," said Daniel R. Feehan, president and CEO of Cash America. "With the
inclusion of the Maxit locations, Cash America will have added 244 pure pawn locations to our business over the
last two years."
The addition of the Maxit stores will significantly increase Cash America's storefront pawn lending locations in
both markets, where Cash America had five pawn lending locations in Washington and 11 company-owned and
seven franchised pawn lending locations in Arizona as of June 30, 2010.
For the 12-month period ended June 30, 2010, Maxit had total revenue of approximately $54 million (unaudited).
Eight of Maxit's 39 locations have been opened during the last 18 months.
Upon completion of the transaction, Fort Worth-based Cash America will have added 244 pawn lending
locations, net of closures and excluding the introduction of pawn lending into existing consumer loan facilities, to
its storefront platform over a 24-month period, representing close to a 25% increase in pawn locations over that
period.
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Charter Hall To Sell Two U.S. Shopping Centers
Charter Hall Retail REIT in Sydney, Australia, contracted to sell two U.S. centers for a combined $23.7 million:
Orchard Square in Atlanta, GA, and Franklin Square in Frankfort, KY.
The combined price reflects June 2010 valuations at a weighted average capitalization rate of 8.84%. Settlement
is due to occur by the end of September.
In line with the REIT's strategy of re-weighting its portfolio to Australia, the net proceeds from the two sales of
($11.2 million) will be repatriated for assets in Australia.
1,000 GM Dealers Planning Facility Upgrades
General Motors concluded the dealer arbitration process and effective Nov. 1, will have a network of about 4,500
U.S. dealerships to sell and service customers for Chevrolet, Buick, GMC and Cadillac vehicles.
Many of these dealerships are participating in a major facilities upgrade program, with more than 300 updates
already completed and about 1,000 projects scheduled through the end of 2010.
Although GM's new dealer network is about 25% smaller than in early 2009, it remains the nation's largest.
During its restructuring last year, GM offered wind-down agreements to 2,064 Chevrolet, Buick, GMC and
Cadillac dealers that the company determined needed to transition one or more of those brands from the dealer
network by Oct. 31, 2010, when the dealer agreement expires.
In June, 2009, GM had 6,049 dealerships selling eight brands, with 87 brand combinations.
The upgrading initiative, which began in October, 2009, is accelerating; dealerships are now upgrading their
stores at the rate of about 100 per month. Major elements of the image upgrades include customer-friendly
features such as work areas with phone and lap top computer power outlets, Wi-Fi and a cafe area with
refreshments.
To support this effort, GM is updating or installing new signs at Chevrolet, Buick, GMC and Cadillac dealerships
across the U.S. The signs feature a more contemporary design and reflect the current image guidelines for each
brand.
Macerich Reopens Santa Monica Place as Open-Air Retail Center
By: Randyl Drummer
In one of the largest retail redevelopments of recent years, The Macerich Co. reopened Santa Monica Place as a
524,000-square-foot open-air retail center in Santa Monica, CA, anchored by Bloomingdale's and Nordstrom.
Following the $265 million redevelopment of the mall, which was originally designed 30 years ago by iconic L.A.
architect Frank Gehry, the three-level project is 92% leased with Nordstrom and Tory Burch opening Aug. 27,
Tiffany & Co. slated to open in September, and The Market at Santa Monica Place planned for the first half of
2011. Retailers opening alongside Bloomingdale's this past week included Louis Vuitton, Barneys Co-op, Nike,
CB2, Ted Baker, Betsey Johnson, Disney, Hugo Boss, Michael Kors, Juicy Couture and Kitson LA.
Macerich chairman and CEO Arthur Coppola said the opening is a highlight in a year that has reflected generally
stronger operating conditions for the company. In the second quarter, the Santa Monica-based REIT saw solid
and improving results, with strong occupancy gains, positive same-center NOI growth and positive re-leasing
spreads.
The strong leasing demand for Santa Monica Place "demonstrates that retailers will respond to a project with
vision, location and top-quality execution even during challenging economic times," Coppola said.
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Property Financings
Cole Credit Property Trust III, through Cole MT Bellevue WA LLC, entered into a mortgage loan agreement
with Wells Fargo Bank as lender, administrative agent, sole book runner and lead arranger in the principal
amount of $156 million. The loan is secured by an approximately 583,000-square-foot office building,
constructed in 2008 in Bellevue, WA, which is 99.6% occupied, of which approximately 96.3% is subject to a net
lease with Microsoft Corp. that expires in June 2024. CCPT III OP executed a swap agreement, which fixed the
interest rate at 3.99% per annum through the maturity date of the loan, Aug. 5, 2015. The loan is an interest-only
loan.
Berkadia Commercial Mortgage originated $10.6 million in permanent, fixed-rate first mortgage financing
through the Freddie Mac Capital Markets Execution (CME) program for Summerchase at Riverchase
Apartments. The property is owned by an affiliate of Birmingham, AL- based Engel Realty Company Inc. The
75% LTV loan, which refinanced an existing Freddie Mac loan, has a 10-year term and a 30-year amortization
schedule. The all-in interest rate was 4.96% for the term of the loan. Summerchase at Riverchase at 100
Summerchase Drive is a 240-unit, Class-A garden apartment community.
CB Richard Ellis Capital Markets Group arranged financing for multiple properties in several markets.
Acquisition financing was arranged for two apartment properties in Orlando, FL. The transactions
represented two separate 10-year loans totaling approximately $13.35 million. Waterways and Silver
Oaks, 320-unit and 360-unit communities in Orlando, FL, respectively. The transactions were financed
via Freddie Mac's Capital Markets Execution (CME) Program at approximately 80% of total cost
including portions planned upgrades and renovations. The loans were each based on a 30-year
amortization and were rate locked in the low 5% range.
Refinancing was arranged for Park Place Apartments in Tampa, FL on behalf of NPV Realty Corp. in the
amount of $4.7 million via Freddie Mac's CME program. Park Place Apartments is a 120-unit apartment
community in Orlando. Terms of financing included a 1O-year loan term, 30-year amortization, 75% LTV,
debt service ratio of 1.47x and a rate in the low 5% range.
Refinancing for two apartment properties on behalf of SMG Property Management Inc. based in
Lakewood Ranch, FL. The properties, Greenland Village Apartments in Lancaster, PA, and Royal Glen
Apartments in Comstock Park, MI, represent two separate loans totaling $13.2 million. Greenland Village
is a 180-unit two-story garden-style property in above-average condition consisting of 19 buildings on
15.7 acres. Financing for Greenland Village was provided via Freddie Mac's CME and consists of a 7year fixed rate in the low 5% range, 73% LT'I, and a debt service ratio of 1.53x. Royal Glen, a singlestory well stabilized garden complex in good condition was closed as part of Freddie Mac's portfolio
execution.
Perry Ellis International Inc. completed the refinancing of its Miami, FL, headquarters facility as well as secured
a fixed interest rate reduction on the mortgage of its Tampa, FL, distribution facility. The refinancing secures a
$13 million mortgage on the Miami facility and results in additional gross proceeds of approximately $2.1 million.
The terms are secured for 10 years with a fixed interest rate of 5.8%, which replaces the previous rate of 7.12%,
and has a maturity of August 2020. For the Tampa distribution facility, a new rate of 5.75%, which represents a
50 basis point interest rate reduction, was secured for the remainder of the term loan which matures in June
2016. These reductions represent an annual interest savings of approximately $215,000.
Arbor Commercial Funding funded the following deals.
A $6 million loan under the Fannie Mae DUS Coop product line for the 300-unit complex known as Three
Fountains West Cooperative in Indianapolis, IN. The 10-year loan amortizes on a 30-year schedule and
carries a note rate of 5.31%.
A $1.5 million loan under the Fannie Mae DUS Small Loan product line for the 48-unit complex known as
Villa Serena Apartments in Pittsburg, CA. The 10-year loan amortizes on a 20-year schedule and carries
a note rate of 5.56%.
A $1.5 million loan under the Fannie Mae DUS Small Loan product line for the 19-unit complex known as
800 Traction Apartments in Los Angeles, CA. The 10-year loan amortizes on a 30-year schedule and
carries a note rate of 5.50%.
A $1.465 million loan under the Fannie Mae DUS Small Loan product line for the 12-unit complex known
as 509 East 12th Street in New York, NY. The 15-year loan amortizes on a 15-year schedule and carries
a note rate of 5.88%.
THE WATCH LIST NEWSLETTER
12
A $1 million loan under the Fannie Mae DUS Multifamily Affordable Housing Coop product line for the
111-unit complex known as Birch Run Cooperative in Romulus, MI. The 30-year loan amortizes on a 30year schedule and carries a note rate of 7.41%.
Pentagon to Cut Thousands of Jobs as Part of New Initiative
By: Andrew Deichler
U.S. Defense Secretary Robert Gates said Monday that the Pentagon would be cutting thousands of jobs and
eliminating several branches in an effort to reduce unnecessary overhead.
The purpose of the reduction is to aid the U.S. military in the wars that it is currently fighting, as well as those it
could face in the future, said Gates.
The biggest eye-opener in the secretary's plan is his proposal to close the U.S. Joint Forces Command
(JFCOM), a four-star command that develops joint war-fighting concepts and capabilities. The command has
approximately 2,800 military and civilian employees and 3,000 contractors.
The secretary feels that training and generating joint forces, while important, no longer needs a separate
command that costs $240 million annually to operate.
Gates is also eliminating some defense offices. A wind-down is in effect for the offices of the assistant to the
secretary of defense for network integration and the Joint Staff's section for command, control, communications
and computer systems. The Business Transformation Agency, which employs 360 people and has a budget of
$340 million, will also be closed.
The announcement is part of an earlier efficiencies initiative put forth by Gates to cut unnecessary spending by
$100 billion over the next five years. Gates said that services across the board are evaluating their programs and
identifying which ones are essential and which ones are no longer affordable. "They are all planning to eliminate
headquarters that are no longer needed and reduce the size of the staffs that remain," he said.
Also on table are excess bases and other facilities, which could potentially be consolidated or closed.
Gates is taking several immediate actions, including freezing the number of positions at the office of the
secretary of defense, defense agency and combatant command at the fiscal 2010 levels.
Additionally, funding for contractors will be cut by 10% each year for the next three years.
Gates has also created a task force to assess the number of positions for general and flag officers, senior
executive service employees and political appointees.
"At a minimum, I expect this effort to cut at least 50 general and flag officer positions and 150 senior civilian
executive positions over the next two years," he said.
The secretary is also reducing funding for multiple reports, boards, commissions, intelligence advisory and
intelligence contracts, and is freezing the number of executive service positions.
But the secretary made it clear that the purpose of the cutbacks is not to cut down the government's defense
budget.
"It is to significantly reduce its excess overhead costs and apply the savings to force structure and
modernization," he said.
President Obama applauded Gates efforts, calling the initiative "another step forward in the reform efforts he has
undertaken to reduce excess overhead costs, cut waste, and reform the way the Pentagon does business."
THE WATCH LIST NEWSLETTER
13
Not everyone is quite so optimistic about the secretary's initiative. Virginia Congressman Robert C. Scott issued
a statement that stressed the necessity for JFCOM, both for the military and in the Hampton Roads area, where
the command is based.
JFCOM leases a significant amount of real estate in Hampton Roads, most notably a 351,074-square-foot office
building at 116 Lake View Parkway in Suffolk. If the command is disbanded, there could be quite a bit of space
hitting the market.
"Since its creation, JFCOM has led the way in joint training concept development and experimentation, which
includes heavy use of modeling and simulation technology," said Scott. "Hampton Roads is the nation's hub for
modeling and simulation technology, and our military has benefited tremendously from effective utilization of this
cost-saving technology - thanks in part to the efforts at JFCOM."
In Scott's opinion, eliminating JFCOM makes little sense, because many positions would simply be relocated to
other departments, causing less coordination within the military. "That's not how you save money," he said.
Scott added that he understood and appreciated the secretary's efforts, noting that there are inefficiencies at
JFCOM and throughout the Department of Defense. He said he is interested in discussing solutions to those
issues. "However, I do not believe completely eliminating a command responsible for ensuring better
coordination amongst the military is the best way to reach the secretary's goal," he said.
Quad/Graphics To Shut Down Five Plants
By: Andrew Deichler
Quad/Graphics is closing five plants as part of its ongoing integration with Worldcolor, which it acquired last
month.
The Wisconsin-based printing company is shutting down its facilities in Clarksville and Dyersburg, TN; Corinth,
MS; Lebanon, OH; and Reno, NV. The plants total approximately 2.7 million square feet and house more than
2,200 employees.
Joel Quadracci, chairman, president and CEO of Quad Graphics, said that the purpose of the integration is to
create a more efficient manufacturing platform.
"Through this plan, more clients will benefit from our industry-leading technology and automation, while
continuing to receive top-quality, on-time services," he said.
Quad/Graphics intends to shut down and scrap most of the equipment at the facilities, and will consolidate work
into plants that the company has deemed more efficient and competitive. Quad/Graphics said it would help
affected employees find new jobs, either with the company or elsewhere.
"No plant is closing because of employee performance or client service issues, but rather because we are
moving work to locations with the most efficient platforms for serving our clients' needs," said Quadracci. "To the
extent possible, we'd like employees to continue with the company and we will review transfer opportunities with
them."
Quad/Graphics said it is on target to achieve about $225 million in pre-tax net synergies within two years of its
merger with Worldcolor.
Local Closures & Layoffs
Company
Address
Quad Graphics
Nationwide
THE WATCH LIST NEWSLETTER
Closure or
Layoff
multiple
closures
#
Affected
2,200
Impact Date
12/31/2010
14
Company
Chrysler Group
Fiskars
Address
5555 30th Ave, Kenosha, WI
305 S 84th Ave, Wausau, WI
APAC Customer Services
Expedia
Expedia
Riddell-Easton-Bell Sports
Whole Foods Market
Benchmark Electronics-Austin
Beckman Coulter
Atwood Lake Resort (Prospera
Hospitality)
Continental Structural Plastics
Icicle Foods
Alcan Cable
Core-Mark Midcontinent Inc.
802 N Carancahua St, Corpus Christi, TX
10440 N Central Expy, Dallas, TX
Arlington, TX
6846 Alamo Downs Pky, San Antonio, TX
Southwest Distribution Center, Austin, TX
9101 Wall St, Austin, TX
Webster, TX
Closure or
Layoff
closure
closure
possible
layoff/closure
layoff
closure
layoff
layoff
layoff
layoff
2650 Lodge Rd, Sherrodsville, OH
100 S Poe Rd, North Baltimore, OH
4152 Meridian St, Bellingham, WA
867 N Bank Rd, Roseburg, OR
160 Enterprise Rd, Johnstown, NY
closure
closure
closure
closure
closure
#
Affected
575
51
Impact Date
10/8/2010
10/1/2010
450
129
167
75
60
88
41
9/30/2010
10/4/2010
10/4/2010
immediately
9/26/2010
10/1/2010
9/30/2010
122
214
71
32
104
10/4/2010
10/11/2010
10/18/2010
immediately
11/1/2010
Lease Cancellations
SuperGen Inc. amended its headquarters lease with Tishman Speyer at 4140 Dublin Blvd. in Dublin, CA. The
pharmaceutical company's new lease commences on Dec. 1 and spans five years, with one 5-year renewal
option. SuperGen's space in the building will be reduced from 50,304 square feet to 37,623 square feet, with
initial monthly rent payments totaling $49,500. Rent increases $1,500 per month at the end of each year of the
term.
The American College of Healthcare Executives (ACHE) completed a lease renegotiation with Tishman
Speyer for its 34,306-square-foot office at One North Franklin in Chicago. The restructure will save the
healthcare professional society approximately $2.7 million over the course of its term, slated to expire in 2022.
Peggy McTigue and Gregg Witt with CBRE represented ACHE in the renegotiation. Ellen May handled the deal
in-house for Tishman Speyer.
Company
SuperGen
ACHE
Address
4140 Dublin Blvd., Dublin, CA
1 N Franklin St, Chicago, IL
Affected Parties
Tishman Speyer
Tishman Speyer
Comment
50,304 SF, reduced to 37,623 SF
34,306 SF
Advertisement
Declines in CMBS Property Values
Investcap Advisors LLC has executed an analysis of over 1,600 CMBS loans in special servicing. Based on
June 2010 data, with updated valuations ordered by special servicers, our research indicates the average
decline in property value is -54.56% from original contribution value. Active CMBS loans which have had a
recent valuation change due to default status.
Watch List: Delinquent Loans Maturing in September
Property Name
Property Address
Property
Type
Courtyard Marriott
175 Railroad St.,
Santa Rosa, CA
Lodging
THE WATCH LIST NEWSLETTER
Curr. Bal.;
Pymt.
Status
$57,677,063;
90+ Days
Delinquent
Maturity
Date
9/6/2010
CMBS; Master
Servicer; Special
Servicer
GCCFC 2005-GG5;
Wachovia Bank; LNR
Partners
15
Property Name
Property Address
Property
Type
Curr. Bal.;
Pymt.
Status
Lodging
see above
9/6/2010
Lodging
see above
9/6/2010
Lodging
see above
9/6/2010
see above
$22,616,612;
90+ Days
Delinquent
9/6/2010
Country Inn & Suites
4422 Y St.,
Sacramento, CA
120 Nut Tree
Parkway, Vacaville,
CA
350 E. Hueneme
Road, Port Hueneme,
CA
Courtyard Marriott
1720 Sisk Road,
Modesto, CA
Lodging
Regal Parc Apartments
2414 N. Macarthur
Blvd., Irving, TX
Multifamily
Palm Plaza & Beachside
Inn
3301 & 3309 S.
Atlantic Ave., Daytona
Beach, FL
Lodging
Emerald Suites
2200 W. Bonanza
Road, Las Vegas, NV
Multifamily
Hilton Garden Inn
8270 N. Tamiami Trail,
Sarasota, FL
Lodging
Americinn Hotel &
Suites
5931 Fruitville Road,
Sarasota, FL
Lodging
Willow Meadow
10630 Beechnut St.,
Houston, TX
Multifamily
170 Hamilton Avenue
170 Hamilton Ave.,
White Plains, NY
Quail Creek & Quail
Ridge Apartments
2097 Dutchmen Drive,
Rock Hill, SC
Pine Circle Townhomes
7102 Lodge Pole
Drive SE, Grand
Rapids, MI
Courtyard Marriott
Courtyard Marriott
$11,291,873;
90+ Days
Delinquent
$9,173,647;
90+ Days
Delinquent
$9,113,677;
60-89 Days
Delinquent
$7,645,911;
90+ Days
Delinquent
Maturity
Date
9/1/2010
9/6/2010
9/11/2010
9/1/2010
9/1/2010
Mixed Use
$7,400,000;
60-89 Days
Delinquent
$6,118,704;
90+ Days
Delinquent
9/11/2010
Multifamily
$5,622,168;
90+ Days
Delinquent
9/1/2010
Multifamily
$2,770,053;
90+ Days
Delinquent
9/5/2010
Asmann Apartments
1607 Asmann Ave.,
Cincinnati, OH
Multifamily
$2,287,462;
90+ Days
Delinquent
9/1/2010
Westwood Apartments
2503 Harrison Ave.,
Cincinnati, OH
Multifamily
see above
9/1/2010
Cavalier Manor
Apartments
24575 Kelly Road,
Eastpointe, MI
Multifamily
$2,093,971;
90+ Days
Delinquent
9/1/2010
THE WATCH LIST NEWSLETTER
9/1/2010
CMBS; Master
Servicer; Special
Servicer
GCCFC 2005-GG5;
Wachovia Bank; LNR
Partners
GCCFC 2005-GG5;
Wachovia Bank; LNR
Partners
GCCFC 2005-GG5;
Wachovia Bank; LNR
Partners
GCCFC 2005-GG5;
Wachovia Bank; LNR
Partners
BACM 2003-2; Bank
of America; ORIX
Capital Markets
GCCFC 2006-GG7;
Midland Loan
Services; LNR
Partners
WBCMT 2005-C21;
Wachovia Bank; LNR
Partners
BACM 2005-5; Bank
of America; Midland
Loan Services
BACM 2005-5; Bank
of America; Midland
Loan Services
JPMCC 2005CIBC13; Midland
Loan Services; LNR
Partners
LBUBS 2003-C8;
Wachovia Bank; LNR
Partners
MSDWC 2000-LIF2;
Wells Fargo Bank;
Berkadia Commercial
Mortgage
GMACC 2000-C3;
Berkadia Commercial
Mortgage ; Berkadia
Commercial
Mortgage
GMACC 2001-C1;
Berkadia Commercial
Mortgage; Berkadia
Commercial
Mortgage
GMACC 2001-C1;
Berkadia Commercial
Mortgage; Berkadia
Commercial
Mortgage
MSDWC 2000-LIF2;
Wells Fargo Bank;
Berkadia Commercial
Mortgage
16
Property
Type
Curr. Bal.;
Pymt.
Status
9/1/2010
9/1/2010
Maturity
Date
Property Name
Property Address
Annie Apartments
9603 N. Nebraska,
Tampa, FL
Multifamily
$1,312,930;
90+ Days
Delinquent
Santo Villa Apartments
1514 E. 138th Ave.,
Tampa, FL
Multifamily
see above
Carefree Valley Resort
4306 N. Business 77,
Harlingen, TX
Mobile Home
Park
$1,228,283;
90+ Days
Delinquent
9/11/2010
Lansing Square
Apartments
11152 E. 16th St.,
Aurora, CO
Multifamily
$1,145,497;
90+ Days
Delinquent
9/1/2010
Wilson Heights
Apartments
4908 36th Ave.,
Kenosha, WI
Multifamily
$845,249;
90+ Days
Delinquent
9/1/2010
CMBS; Master
Servicer; Special
Servicer
PNCMA 2000-C2;
Midland Loan
Services; Midland
Loan Services
PNCMA 2000-C2;
Midland Loan
Services; Midland
Loan Services
CSFB 2003-C5;
Midland Loan
Services; ING Clarion
Capital Loan
Servicing
DLJCM 2000-CKP1;
Key Bank Real
Estate Capital; C-III
Asset Management
DLJCM 2000-CKP1;
Key Bank Real
Estate Capital; C-III
Asset Management
Advertisement
THE WATCH LIST NEWSLETTER
17