CMBS LOAN RESTRUCTURE PROJECTS
*A representative list of CMBA Loan Restructure Projects
Dubois Mall, Dubois, Pennsylvania
The property was a 440,000 square foot enclosed mall anchored by J.C. Penny, Sears (with its lease expiring in less than a year), Ross Dress for less, Old Navy, Dunham’s Sporting Goods, Big Lots and Staples.  For the five years forward, from the time of restructure, the property lease expiration schedule averaged about 75,000 square feet per year.  This problem was exacerbated by continual declining retail sales figures for virtually every tenant.  The property was encumbered by a $30.3 million first loan which required monthly payments of $205k per month, which was barely covered by $250k in cash flow.  However, it was the impending departure of Sears and the effect such departure would have on smaller tenants with co-tenancy clauses.  Property operations were in a phase transitions to total disaster.  In an effort to head off this problem, the client offered a discounted payoff to the lender in an amount equal to what he believed he could carry while he spent time repositioned the mall and brought in different tenants with different uses.  The negotiations with the lender were complicated and entailed both sides understanding the likelihood of various levels of cash flow deterioration, and whether either side felt more inclined to spend the time and money to revive the property.  To develop a better understanding of what those possible outcomes could be, we built a dynamic cash flow projection model that incorporated all the existing tenants and current operating expenses.  Different scenarios of certain tenants staying at lower rents and other tenants leaving were assumed.  Ultimately, the parties came to their own conclusions regarding upper bound and lower bound projections and a deal was made.
Metro Square 95, Jacksonville, Florida
The property was an 8-building, 375,000 square foot office/industrial park, and a McDonalds outparcel, sandwiched between Philips Highway and I-95, in Jacksonville, FL.  The buildings ranged in size between 14,177 square feet and 109,287 square feet, with partial occupancy.  Overall, the property was burdened by a first mortgage balance of $48.0 million, or $102 per square foot, and a maturity date quickly approaching.  Building values were estimated by a local broker to range between $25 and $111 per square foot.  At the time, the Jacksonville market for similar properties was nearly 17% vacant with lease rates well below most of the lease rates of the tenants currently occupying space in the property.  In an effort to resolve the senior loan, an A/B mortgage structure was proposed, which bifurcates the current loan, and its payments, into two separate instruments.  The “A” portion is paid current and is sized based on what the property projections say the property can service on a current and consistent basis.  The “B” note was structured as a residual interest that accrued interest at a lower rate, and paid when the property sold or was refinanced.  The point of instituting this structure was to provide the borrower time to figure out a new leasing plan to enhance revenues and increase capital value.  The structure was premised on a very detailed cash flow projection for the property, incorporating several different scenarios for the pace of lease up along with lease rates and commensurate T.I.’s.