single-tenant property sales surge to record numbers · pegasus investments in los angeles....

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A WEEKLY NEWSLETTER FOCUSING ON CHANGING MARKET CONDITIONS, COMMERCIAL REAL ESTATE, MORTGAGES AND CORPORATIONS PUBLISHED BY COSTAR NEWS

IN THIS WEEK'S ISSUE:

Single-Tenant Property Sales Surge To Record Numbers ................................................................................................................ 1 Cheap Money Fueling Net Lease Market .......................................................................................................................................... 3 CRE Execs: Full Recovery Years Away ............................................................................................................................................ 4 Foreign CRE Investors Expanding Their U.S. Appetite Beyond Core ............................................................................................... 5 CMBS Market Improves: LiquidationsUp, Payoffs Up, Losses Down ................................................................................................ 6 Trump Accepts Gold Bullion as Lease Deposit ................................................................................................................................. 7 Big Dollar Bank Failures May Have Peaked ...................................................................................................................................... 7 Real Money: Retail Developers Rake it In ......................................................................................................................................... 9 Walmart: Has Vacancy ...................................................................................................................................................................... 9 Ares Management, Canada Pension Plan To Pay $1.6 Bil. for 99 Cents ........................................................................................ 10 NYC Financial Industry Facing Another Round of Huge Layoffs ..................................................................................................... 11 Corporate Downsizings & Closures ................................................................................................................................................. 11 Excelsior LaSalle Affiliate Defaults on Colorado Mall ...................................................................................................................... 13 Loans and Properties Under Surveillance ....................................................................................................................................... 14 Watch List: An Assortment of Large Specially Serviced Loans ....................................................................................................... 14

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Single-Tenant Property Sales Surge To Record Numbers Investors Turn to the Safe Haven of Quality Tenants; (Part 1 of a 4-Part Series)

With money to burn but an aversion to risk, investors have turned single-tenant properties into one of the hottest commercial real estate plays in the country. For the last quarter of 2010 and first two quarters of this year, CoStar Group shows that single-tenant property sales have averaged more than 10,000 transactions per quarter – the highest quarterly totals this century. While full third quarter sales comparables are not yet available, CoStar is showing that pace is continuing. So far this year, CoStar is showing more than 30,000 single-tenant sales valued at $29.2 billion in all property types. Retail sales have accounted for about half of the activity. The single-tenant, net lease investment sales market is expected to continue growing according to Jones Lang LaSalle, which this month launched a new website dedicated solely to net lease exchanges. "The low interest rate environment and the lack of safe-haven investment alternatives are driving new sources in build-to-suit and sale-leaseback activity, and investors have incredibly healthy appetites for stable and dependable income streams that single-tenant assets provide," said Guy Ponticiello, managing director Jones Lang LaSalle's Corporate Finance & Net Lease division. Fully leased core properties have been highly sought-after by investors, often from overseas, and prices for these properties have been strong, according to Jane L. Mendillo, president and CEO of Harvard Management Co. in her most recent Harvard University Endowment report. "We were able to sell some of our portfolio properties in this category at excellent values," Mendillo said. And now Harvard is ready to invest in new round of such properties. Jones Lang LaSalle's Capital Markets secured $360 million in acquisition equity for a real estate investment vehicle to be managed by U.S. Realty Advisors LLC. The entity, called USRA Net Lease Capital Corp., will

MARK HESCHMEYER, EDITOR WWW.COSTAR.COM OCTOBER 13, 2011

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pursue the purchase of single-tenant net leased assets throughout the U.S. Harvard University's endowment is the main investor in the venture that could buy more than $1 billion of triple-net leased property. Indeed, institutional and private equity interest is high. "One way to hedge risks in todays highly volatile and lower yield environment is to invest in net lease properties, ideally with credit tenants," said Tim Wang, Ph.D., senior vice president of Clarion Partners in New York. "Until recently, the most active net lease investors have been dominated by dividend-paying private REITs and 1031 exchange buyers. However, net lease investments are becoming increasingly attractive to institutional investors because of their longer lease terms, higher income, and lower operating expenses. "For assets in primary U.S. markets on a long-term (10+ year) net lease to a nationally recognized company there is a highly disproportionate supply of money vs. supply of product. This has been a primary driver pushing yields down to levels not seen since prior to the credit crisis," said David B. Chasin, executive vice president of Pegasus Investments in Los Angeles. "Given the macro-economic uncertainty, historically low Treasury yields and breakdown of Wall Street equity markets, the net leased investment market provides an extremely attractive platform." But big money isn't the only player in the market. Mike Eyer, senior advisor for Sperry Van Ness in Fort Collins, CO. said, "Recently individual buyers from the coastal markets are getting even more aggressive and are pricing the institutions out of the market." The increasing demand for these investment leases isn't necessarily coming by choice, said Brian Merzlock, valuation manager at Williams Williams & McKissick auction house in Tulsa, OK. "This is a market-forced move," Merzlock said. "When you are disheartened by the world markets time and time again, you become more restrictive with your capital and the retail lease market becomes a more appealing to risk appetite." "With companies recording higher profit levels, there has to be some kind of tax shield in the capital fund creating a tradition solution to the nasty volatile bear market trends we are experiencing," Merzlock said. "We are seeing increased stability in those markets that have been traditionally strong and little demand in the newer 'suburbs' where you'll see numerous clusters of new, yet vacant, retail buildings haunting the markets long after Oct 31." Jeffrey Rogers, president and COO of Integra Realty Resources in New York, said, "Investors are favoring this type of investment because capital for this property type has increased and demand for the property type is outpacing supply. There has been very little new development over the past three years and that has caused some pent up demand." Consequently, "any increase in demand for retail products will increase the desirability of net leased retail investments because demand leads to better tenant quality, which is one of the three metrics investors focus on to decide whether to invest. Increased sales and consumer sentiment leads to higher tenant credit ratings. The other two metrics are favorable lease terms and location of the asset," Rogers said.

NOT ALL RETAILERS ARE CREATED EQUAL

As the total numbers indicate, retail is the preferred property type for single-tenant investors but there is a bifurcation within that segment, said Scott P. Lifschultz, president of SPL Realty Partners in Santa Monica, CA. "It's important for an investor to identify solid performing retailers such as Walgreens, Walmart, Whole Foods and other grocery chains, as well as other leading retail chains," Lifschultz said. "Consumer spending is a significant indicator as it relates to retail earnings, so again, identifying solid performing, "every day needs" tenants garner the most interest and highest pricing." Rick Puttkammer, senior vice president of Flocke & Avoyer in San Diego said, "Much of the NNN leased product on the market is 'necessity based' (to coin the new phrase in retail). Examples are banks, drug stores, food and price-oriented retailers. The NNN leased market is not as active for high end retail, home furnishings, sporting goods and other uses that consumers can take or leave."

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In addition, freestanding medical uses like dialysis (DaVita and Fresenius), automotive (Jiffy Lube and Valvoline) and some credit rated or creditworthy day care operators (KinderCare) are doing well, Puttkammer said. Daniel Lincoln, an appraiser with CBRE Valuation & Advisory Services in Birmingham, AL, said he has appraised eight net leased Fresenius dialysis clinics in the past 18 months, all which were purchase transactions. Consumer spending remains a critical element of the net-leased world, particularly for retail assets, said Brandon Duff, director Stan Johnson Co. in Chicago. "Investors are searching for leases backed by retailers who are performing well at both the corporate level and the individual store-level," Duff said. "Need-based retailers such as grocery stores, pharmacies, and fast-food retailers are drawing strong interest from investors. These assets are viewed as more secure, as they are key elements of the consumer environment, which are a critical part of everyday life." [Editor's Note: This is Part 1 of a four-part series on the single-tenant, net leased property market. Also published is Part 2: Cheap Money Fueling Single-Tenant Market. Parts 3 and 4 of the series will be published next week. Part 3 will look at the successes and failures of two of the biggest spenders in the market. Part 4 will look at the emerging trends in the single-tenant investment market.]

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Cheap Money Fueling Net Lease Market Higher LTVs and Tax Plays Also Figure In; (Part 2 of a 4-Part Series)

Cheap money from a variety of capital sources both large and small has fueled the more than $29 billion of confirmed single-tenant investment sales year to date. Because of the continued uncertainty associated with the stock market, low yields in more traditional investments along with poor performance of multi-tenant retail, the investment market has been turning to more predictable cash flow and returns. Lenders and funds have responded accordingly. "The 'buy' side is being driven by the non-traded public REITs who raise funds from individual investors through broker-dealer networks," said Scott E. Tracy, founding principal Corporate Partners Capital Group in Los Angeles. CoStar data backs up the track record of fundraising for non-traded public REITs. In the past year, five funds alone have raised more than $4 billion.

W. P. Carey & Co. LLC $1.76 billion

Realty Income Corp. $664 million

American Realty Capital Partners $642 million

National Retail Properties Inc. $540 million

Medical Properties Trust $450 million That kind of fundraising clout makes acquisition credit facilities available to such firms cheap. For example, Realty Income Corp.'s average borrowing rate on its acquisition credit facility as of June 30, 2011, was just 2%. National Retail Properties' credit facility currently accrues interest at a rate of 1.73%. Jonathan Wolfe and Jordan Shtulman, senior vice presidents with Grubb & Ellis Sale Leasebacks/Net Leased Properties Group in Chicago explained that as interest rates have moved lower, this has resulted in a lower cost of financing. In addition, lenders are putting an emphasis credit quality—all of which has driven demand for net leased properties with strong credit tenants. The non-investment grade net leased assets are more challenging to finance. Therefore the buyer pool is smaller for these types of properties. This is particularly true when the assets are located in secondary, tertiary and rural markets, Wolfe and Shtulman explained.


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Tracy also said that in addition to the cheap money, there is an active 1031 tax deferred exchange market that is fueling activity at the lower price points. Cynthia Shelton, director, investment sales at Colliers International in Orlando, said: "1031 buyers for single-tenant properties are strong. There is lots of interest in these properties as it's a rush to safety and returns that are better than T-bills and mutual funds while not as risky as stocks. Many restaurant franchisees are also coming back to the market with sale leasebacks." "Individual investors are taking money out of other investments that are not getting the return that they can get in real estate," she said. "Many institutions and individuals are paying cash and financing after the close. Some are getting 50% to 60% loan-to-values with 20- to 25-year amortizations and 5- to 10-year terms depending on the tenant and term of the lease." "The investment grade credit with long-term leases can still get 70% to 80% loan-to-values and have a positive spread between the low interest rates and the yield on the real estate," she said. "Some are using lines of credit with plans to refinance later." David Zacharia, principal of DZ Realty in Las Vegas, is seeing money coming from another common source. "High net worth individuals is another large player in today's net lease market acquiring many corporately leased fast food, drug store, auto parts, and dollar store leases. Almost half of these buyers are estimated to be transacting within a 1031 exchange," Zacharia said. "For the smaller deals like McDonald's, it's almost exclusively coming from private, high net worth investors and family trusts," said David B. Chasin, executive vice president of Pegasus Investments in Los Angeles. "For the larger deals (portfolios and single assets greater than $15 million), we're seeing strong appetite from the private REITs, overseas (particularly Europe and Asia) and syndication platforms." Larry Hausman, a senior broker with Marcus and Millichap of Louisville, KY, said people are increasingly becoming more afraid of inflation and no longer want to hang on to their cash. "Many investors are taking advantage of historic low interest rates to buy quality assets. Thus there has been increasing competition for high quality assets that can yield greater returns than bonds of the same credit rating," Hausman said. Phil Ryan, an associate with Lavista Associates Inc. in Norcross, GA, said there are several reasons why capital is flowing to single-tenant properties. "Capital is coming from several sources: the private equity investor who needs income, the institutional investor who needs to stay in real estate but desires to reallocate its holdings to diversify risk and several private equity groups that are raising funds in the market promising adequate returns with low risk," Ryan said. [Editor's Note: This is Part 2 of a four-part series on the single-tenant, net leased property market. Also published is Part 1: Single-Tenant Property Sales Surge To Record Numbers. Parts 3 and 4 of the series will be published next week. Part 3 will look at the successes and failures of two of the biggest spenders in the market. Part 4 will look at the emerging trends in the single-tenant investment market.]

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CRE Execs: Full Recovery Years Away By: Randyl Drummer While most commercial real estate executives expect to add personnel and increase revenue over the next year, more than half don’t expect the economy to reach full recovery until the end of 2013 at the earliest, according to a recent survey by KPMG LLP.


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Three-quarters of the senior executives surveyed by the tax, auditing and advisory firm over the summer expect higher revenue a year from now, with 64% reporting that revenue is higher this year than at the same time in 2010. About 53% expect to add personnel over the next year, while 13% expect to decrease headcount. That being said, only 27% expect their U.S. work force to reach pre-recession levels by the end of 2013, while 17% said it won't be until the end of 2014. Another 11% said hiring would never again return to pre-recession levels, and 57% don’t expect a full economic recovery until the end of 2013 or later. The survey reflects a combination of the bearish sentiments expressed by participants in a recent survey by DLA Piper and the somewhat more optimistic outlook by respondents to an investor survey last month by PwC. Two-thirds of respondents said investment opportunities are better than a year ago and 75% said distressed real estate would have an impact on their investment strategies over the next 12 months. Greg Williams, national leader of KPMG LLP's building, construction and real estate practice, said that given the uncertain economic conditions and how hard real estate was hit by the downturn, it’s not surprising that real estate executives believe it will be some time before they see evidence inspiring higher levels of confidence. "The good news is that there has been an infusion of capital as institutional investors and others seeking an alternative to the public equity markets are investing in [CRE], especially in primary markets where we're seeing prices at or near pre-recession values," Williams said. Most executives remain concerned about real estate fundamentals, an indication that prices in may not have hit bottom yet, in many markets, Williams said, adding that "executives are struggling to find sectors and markets that can deliver a reasonable return on their investments commensurate with the risk involved." The survey found a bright spot in multifamily, where investors and developers are gaining traction due to lingering weakness in the sales of single-family homes. More than one-third of KPMG survey participants expect a significant level of multifamily development to start next year -- much higher than office (22%), retail (20%), hospitality (19%) and industrial (17%). Spending on information technology topped the list of expected capital expenditures over the next year at 44%, followed by acquisition of a business at 31% and new products and services, 23%. "Companies are looking at IT investments to further increase efficiencies, especially in back-office operations," Williams said. Weak tenant demand was the most significant obstacle to growth over the next year, cited by 36% of real estate executives. Regulatory/legislative and pricing pressures followed at 28% and 23%, respectively. More than half of respondents, 57%, said they economic indicators in their primary markets such as unemployment, job growth, cost of living to be better this time next year. Another 34% said economic fundamentals would be the same as this year. About 33% said investing in organic growth would be the single initiative on which the company would spend the most energy, time and resources over the next two years, followed by improving operations and technology (16%), changes to business models (13%) and mergers or acquisitions (13%). About 56% of KPMG respondents work for companies with annual revenues in the $100 million to $1 billion range, 36% with revenues in the $1 billion to $10 billion range, and 8% with revenues exceeding $10 billion.

Foreign CRE Investors Expanding Their U.S. Appetite Beyond Core The abundance of foreign investors focused on core assets in coastal United States markets has begun to diversify in the latter half of 2011, with secondary markets, value-add and distressed properties reigniting interest from European and Asian investors, according to Jones Lang LaSalle's International Capital Group.

http://www.costar.com/News/Article/CRE-Execs-More-Bearish-Based-On-Economy-and-Govt-Impact/132606

http://www.costar.com/News/Article/CRE-Execs-More-Bearish-Based-On-Economy-and-Govt-Impact/132606

http://www.costar.com/News/Article/Investors-See-Stability-In-Commercial-Real-Estate-Despite-Weak-Recovery/132430


The year ahead should also show a marked change in the appetite for development as long-time players consider projects in high barrier-to-entry markets. "For the past 18 to 24 months or so, we've seen a large number of investors strategically competing for the preeminent assets in the top core markets—those in New York, Washington, DC, and San Francisco, for the most part," said Steve Collins, International Director of Jones Lang LaSalle's International Capital Group. "Now, we're experiencing a notable thinning of the peloton as those same investors move slightly further out the risk continuum into solid, well located properties in secondary markets, or staying within core markets, but broadening their search to include value-add or even distressed assets within those markets." Some notable examples of investors seeking risk-adjusted returns in former "flyover" markets (which describe those secondary markets that investors literally fly over when they're reaching another major city) include: In August, Allianz, along with joint venture partner, CCP Investment Board out of Canada, purchased two multifamily properties in Boston—the Archstone North Point for approximately $186 million and the Archstone Woodland Park for approximately $84 million. The North American Development Group out of Ontario, Canada, purchased the Edgewood Retail District in Atlanta for $81.7 million in September and a joint venture between Chinese and Korean investors purchased Three First National Plaza in Chicago in August for approximately $348 million. For the majority, joint ventures remain the foreign investment vehicle of choice for U.S.-based office investments, particularly those from Germany and France, while Middle Eastern and Asian investors have their eyes on multifamily, JLL International noted. Development also appears poised to make a tentative comeback as long-time international players begin investigating opportunities for office project developments in those same barrier-to-entry markets of New York and Washington, DC. "Little to no development over the past two years has resulted in falling vacancy rates, and higher rental rates in the office sector of these core markets," Collins said. "Some foreign investors who have gone through three to five cycles throughout the years and are now beginning to feel more comfortable with future development plans. Aggressive foreign investors with higher risk appetites could be the first to break ground to benefit from the recovery." Foreign lenders have also become more aggressive in 2011, with overseas banks and funds quoting interest rates around 3.25% with interest-only components for as long as five years, though underwriting remains extremely tight. "We're seeing a number of U.S. borrowers choosing foreign lenders due to their ability to take down a larger loan, with longer terms and shorter execution. While large-scale transaction activity is muted, foreign investors could be in a position to break away from the pack in 2012," Collins said.

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CMBS Market Improves: Liquidations Up, Payoffs Up, Losses Down The balance of CMBS conduit loans liquidated in September jumped to $1.26 billion—an increase of almost 25% from the low August reading. At $1.26 billion, the volume is very close to the 12-month rolling average for the volume of loans liquidated each month, according to Trepp LLC. The average loss severity was down more than four percentage points, but still remains above the 12-month rolling average. In total, 141 loans were liquidated in September. (That compares to 159 loans and $1 billion in face amount in August.) The losses from the September liquidations were about $573 million—representing an average loss severity of 45.4%. In August, the average loss severity was 49.9%.



The September loss severity average is above the average loss severity of 42.4% over the last 21 months and relatively close to the 12-month rolling average of 40.2%. The special servicers have been liquidating at an average rate of about $1.03 billion per month since the beginning of 2010, and $1.21 billion on the basis of the 12 month rolling average. The average loan size for loans that were liquidated in September was just under $9 million. According to, the percentage of loans paying off on their balloon date posted their highest reading since December 2008. In September, 64.4% of loans reaching their balloon date paid off. This is only the third time since late 2008 that the percentage cracked 50%. The September number was well above the 12-month rolling average of 42.6%. By loan count (as opposed to balance), 55.6% percent of the loans paid off. This was up over 12 points from August’s reading of 43.1%. On the basis of loan count, the 12 month rolling average is now 49.4%. Prior to 2008, the payoff percentages were typically well north of 70%. Since the beginning of 2009, however, there have only been two months where more than half of the balance of the loans reaching their balloon date actually paid off.


Trump Accepts Gold Bullion as Lease Deposit For the first time in the history of The Trump Organization, Donald J. Trump will be accepting gold bullion as a security deposit. APMEX, one of the largest U.S. precious metals dealers, will give Trump gold bullion as a deposit on a 10-year commercial lease for the entire 50th floor at 40 Wall St., also known as the Trump Building, in New York City. APMEX CEO Michael Haynes gave Trump three, one kilo, .9999 pure gold bars, weighing in total approximately 96.45 troy ounces on lease signing last week. "The Trump Organization has always strived to be 'the gold standard,'" Trump said. "We welcome APMEX as our tenant at 40 Wall, a prestigious and historical location. The legacy of gold as a precious commodity has transcended to become a viable currency and an accepted universal monetary standard. Central Banks around the world are holding gold as a reserve asset. It is also a terrific, potentially lucrative diversifier in a portfolio, especially with such volatility in the stock market." APMEX will take occupancy of approximately 10,000 square feet at 40 Wall Street in about 90 days, and plans to have 25 employees at the site initially, with an option to increase space to accommodate as many as 200. APMEX will retain its distribution headquarters in Oklahoma City, with key finance and marketing management stationed in New York. Cushman Wakefield acted as the broker on the lease.

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Big Dollar Bank Failures May Have Peaked But Add Two More Mid-Sized Failures to the List

The Federal Deposit Insurance Corp. this week projected that cost of FDIC-insured institution failures for the next five years would not match all of the estimated losses for banks that failed in 2010 alone. The FDIC estimated the cost of failures from this year through 2015 would hit $19 billion – well shy of the $23 billion in failure costs last year.




As CoStar noted last week, the pace of bank failures has started falling well off the pace of last year. There were 26 bank failures in the third quarter—a nearly 56% decrease in bank failures compared to the same quarter a year ago. Trepp LLC estimated this week that the total failure count could top 100 banks this year, with failures likely extending into 2012. After accounting for the recent failures, there are still 238 banks on the Trepp watchlist that feature high Failure Risk scores (as of the second quarter). However, the remaining banks on its troubled bank list are predominantly smaller, with an average asset size of $310 million. Only 12 of the highest risk banks have total assets in excess of $1 billion. In the first week of October, two more banks failed.

TROUBLES INUNDATE THE RIVERBANK

The Minnesota Department of Commerce closed The RiverBank in Wyoming, MN, and appointed the Federal Deposit Insurance Corp. (FDIC) as receiver. The FDIC then sold the bank and its six branches to Central Bank in Stillwater, MN. As of June 30, 2011, The RiverBank had $417.4 million in total assets and $379.3 million in total deposits. The bank had reported losing $8.1 million through the first six months of the year. The FDIC and Central Bank entered into a loss-share transaction on $339.3 million of The RiverBank's assets. About one-fourth of its assets were delinquent, foreclosed or restructured commercial real estate related. The RiverBank held $32 million in foreclosed properties and had another $31 million in CRE-related loans in nonaccrual status. The FDIC estimates that the cost to its Deposit Insurance Fund (DIF) will be $71.4 million. The RiverBank is the 75th FDIC-insured institution to fail in the nation this year, and the second in Minnesota.

MISSOURI RECORDS ITS FIRST BANK FAILURE OF THE YEAR

Great Southern Bank in Springfield, MO, entered into a purchase and assumption agreement, including a loss sharing agreement, with the FDIC to purchase substantially all of the assets and to assume substantially all of the deposits and other liabilities of Sun Security Bank, a full-service bank headquartered in Ellington, MO. Established in 1970, Sun Security Bank operated 27 locations in 15 counties in central and southern Missouri. Only one market, Stockton, overlapped between the Sun Security Bank and Great Southern footprints, with both institutions operating one branch in this market. Great Southern will be assuming approximately $287 million of deposits of Sun Security Bank at no premium. In addition, Great Southern is purchasing approximately $245 million in loans and $35 million of other real estate owned (ORE) at a discount of $55 million. The loans (excluding approximately $4 million of consumer loans) and ORE purchased are covered by a loss sharing agreement between the FDIC and Great Southern. Under this agreement, the FDIC has agreed to cover 80% of the losses on the covered loans and ORE. In addition, Great Southern will also be purchasing cash and certain marketable securities of Sun Security Bank. As of June 30, 2011, Sun Security Bank had $355.9 million in total assets. The FDIC estimates that the cost to its Deposit Insurance Fund (DIF) will be $118.3 million. Sun Security Bank is the 76th FDIC-insured institution to fail in the nation this year, and the first in Missouri.




Real Money: Retail Developers Rake it In Simon Property Group Inc. in Indianapolis entered into a new unsecured revolving credit facility that increases the company's revolving borrowing capacity to $4 billion. This facility, which can be increased to $5 billion during its term, will initially mature on Oct. 30, 2015, and can be extended for an additional year. The base interest rate is LIBOR plus 100 basis points. For this facility, JPMorgan Chase and Bank of America Merrill Lynch were joint lead arrangers and joint bookrunners. TIAA-CREF and CBL & Associates Properties Inc. closed a $1.09 billion real estate joint venture to invest in market dominant shopping malls. TIAA-CREF received a 50% pari passu interest in the three enclosed malls, including Oak Park Mall, West County Center and CoolSprings Galleria, and a 12% interest in Pearland Town Center. In total, CBL reduced outstanding debt balances by approximately $486 million through TIAA-CREF's assumption of approximately $267 million of property-specific debt and cash proceeds of approximately $219 million. CBL continues to manage and lease the properties. Eastdil Secured acted as CBL's exclusive financial advisor in arranging this joint venture. The Howard Hughes Corp. in Dallas completed a $250 million loan to support the redevelopment and master plan for Ward Centers in Honolulu, HI. The loan initially funded $212 million to refinance three existing mortgage loans and for closing costs. The remaining $38 million undrawn amount will provide additional capital for the initial redevelopment of Ward. The loan has a 5-year term and bears interest at one-month LIBOR plus 2.5%. At closing Howard Hughes swapped $143 million of the loan to a 3.8% fixed rate. Based on current rates, the blended interest rate is 3.45% and represents approximately $3.6 million of annual interest savings over the refinanced loans. The lead lender is Wells Fargo is the lead lender. Sunstone Hotel Investors Inc. in Aliso Viejo, CA, refinanced a $270 million loan secured by interests in the 460-room Doubletree Guest Suites Times Square in New York. The hotel was refinanced with a new $180 million 7-year, non-recourse mortgage. The new mortgage is interest only for the first 24 months and bears a floating interest rate of 3-month LIBOR plus 325 basis points. The company funded the remainder of the repayment of the prior loan with approximately $90 million of its unrestricted cash. EastGroup Properties Inc. in Jackson, MS, signed an application for a $54 million non-recourse mortgage loan. The note will have a fixed interest rate of 4.09%, a 10-year term, a 20-year amortization schedule and is secured by properties containing 1.4 million square feet. Closing of the new mortgage loan is expected to occur in January 2012,. The company plans to use the proceeds to reduce its variable rate bank borrowings. Inland Real Estate Corp. in Oak Brook, IL, issued 2 million shares of preferred stock in a public offering price for net proceeds of $48.4 million. The money will be used to repay debt.


Walmart: Has Vacancy By Elizabeth Berthelette Cat-e-go-ry kill-er (noun): a large company that puts less efficient or highly specialized merchants out of business. Walmart is the epitome of a category killer and has been blamed for putting retail establishments out of business for years. When this retail giant isn't snuffing out the competition, it is actively leasing and selling former stores that have been vacated. In aggregate, Walmart is leasing or subleasing 8.2 million square feet of retail space and has another 4.9 million square feet for sale throughout the country. Though some of these stores may still be operational, they will likely be put out to pasture soon enough — making way for newer, larger supercenters. Given Walmart's presence in some markets, vacating space can have quite an impact. This is particularly true in areas with a small population base and low retail inventories. For instance, at the state level, vacant Walmarts account for a significant portion of the empty power, community, and neighborhood centers in places like Montana, Iowa, and West Virginia.


mailto:[email protected]?subject=Walmart%20Has%20Vacancy


On the other hand, Ohio is in the top seat for amount of Walmart square footage being leased, with more than 900,000 square feet. Texas is a close second with nearly 775,000 SF. However, these states maintain a higher population base, with a greater population density and thus more retail space. As such, vacant Walmarts only account for 3.2% and 1.6% of empty power, community, and neighborhood centers in Ohio and Texas, respectively. Though the average size of a Walmart store is 108,000 square feet, subdivision is difficult because of the standard building layout. Tenants looking for large contiguous blocks of space are few and far between, given the economic uncertainty surrounding the recovery. And this doesn't even account for the unoccupied Targets and Kmarts that are out there. That said, the most likely tenants for these properties include gyms, churches, schools, and the like, as retailers (i.e., other big-box stores) that Walmart views as a competitor will not make this short list. These nontraditional retail space users will probably command a discounted rental rate, weigh on the shopping centers' future value and tenant roster, and ultimately hinder the recovery in these smaller markets with smaller retail inventories.

Ares Management, Canada Pension Plan To Pay $1.6 Bil. for 99 Cents 99 Cents Only Stores agreed to be acquired by affiliates of Ares Management LLC and Canada Pension Plan Investment Board for$20/share of common stock for a total value of $1.6 billion. Last March, private equity fund Leonard Green & Partners LP made a similar offer for $19.09/share. City of Commerce, CA-based 99 Cents Only Stores currently operates 289 extreme value retail stores consisting of 214 stores in California, 35 in Texas, 27 in Arizona, and 13 in Nevada. The company’s existing stores average 21,200 gross square feet, however, 99 Cents has been targeting new store locations between 15,000 and 19,000 gross square feet. Members of the Gold/Schiffer family voted to support the transaction and will continue to hold a significant minority ownership stake. Eric Schiffer (CEO), Jeff Gold (president and COO), and Howard Gold (executive vice president) will continue in their current leadership roles at the company and will serve as directors. Founder David Gold will serve as chairman emeritus. "We expect this transition to be a win-win for everyone as it delivers significant value to our shareholders," Schiffer told employees on announcing the deal. "It provides access to expertise to help us accelerate our growth, and helps ensure that we can continue to deliver extreme value to our customers and provide a great place to work for our 99ers. The news of this agreement should not be a distraction to any of us, as we do not contemplate any material change in the way the business is managed. It is business as usual." 99 Cents is required to pay a termination fee of $47.25 million if it terminates the merger agreement under certain circumstances. Ares and the Canada Pension Plan would have to pay a $94.5 million termination fee. The buyers have obtained equity financing commitments from Royal Bank of Canada, RBC Capital Markets, Bank of Montreal and BMO Capital Markets providing for a $150 million revolving credit facility, a $525 million term loan and a $250 million bridge facility (with the bridge facility to be funded through a private placement of non-convertible debt securities or a bank loan). The transaction is expected to close during the first quarter of calendar year 2012.




NYC Financial Industry Facing Another Round of Huge Layoffs As revenue from proprietary trading has fallen off significantly, the New York City's securities industry has resumed downsizing and announced a new round of layoffs. Since April 2011, the securities industry in New York City has lost 4,100 jobs. The Office of the State Comptroller (OSC) forecasts that the City could lose nearly 10,000 additional jobs by the end of 2012, which would bring total job losses in the securities industry to 32,000 since January 2008. Additional job losses are expected in banking and in other parts of the financial services sector. The securities industry in the rest of New York State suffered a similar decline in employment (nearly 13%) during the recession. The New York State Comptroller said Wall Street firms still faces significant challenges including the ongoing European sovereign debt crisis, an economic slowdown in the United States, regulatory changes, heightened market volatility and slumping market indices. "It now seems likely that profits will decline sharply from last year’s level, job losses will grow, and cash bonuses will be smaller," the state comptroller reported. "Such developments would have a ripple effect through the rest of the local economy and hinder the recovery." The banking sector lost 12,900 jobs in New York City between December 2006 and November 2009, a decline of 13.3%. Since then, banking has regained 2,000 jobs, but recent announcements of large-scale layoffs are likely to include jobs in New York City. Overall, the financial services sector (consisting of securities, banking, insurance, and real estate) in New York City lost 46,900 jobs during the recession. Although the sector employs only 12% of the City’s workforce, one out of every three jobs lost during the recession was in this sector. While financial services recovered 10,600 jobs through August 2011, the sector is likely to experience significant job losses over the course of the next year, the comptroller's office reported.

Maybe finance firms will end up leaving Wall St to #OccupyWallStreet protestors after all? Reply here.

Corporate Downsizings & Closures

Company Address

Closure or Layoff

Leased or Owned

No. Impacted Impact Date

CoStar ID No.

The Great Indoors 1301 North Victory Place, Burbank, CA Closure Leased Unknown immediately 1183408

The Great Indoors 71 Technology Drive, Irvine, CA Closure Leased Unknown immediately 967767

Sears Product Repair

190 Frontage Rd, West Haven, CT Closure Owned Unknown immediately

Sears Full-Line 2724 W US Highway 90, Lake City, FL Closure Leased Unknown immediately 7575798

Kmart 2403 SW 27th Ave, Ocala, FL Closure Leased Unknown 10/31/2011 965175

Kmart 1801 S Semoran Blvd, Orlando, FL Closure Leased Unknown 12/31/2011 1180059

Kmart 1650 Airport Blvd, Pensacola, FL Closure Leased Unknown immediately 1170171

Kmart 5597 Buford Hwy, Doraville, GA Closure Leased Unknown 11/30/2011 439648


2301 Mt Industrial Blvd, Tucker, GA Closure Owned Unknown immediately 438746

Sears Full-Line 600 Shannon Southpark, Union City, GA Closure Owned Unknown 12/16/2011



Company Address

Closure or Layoff

Leased or Owned


CoStar ID No.

Westec Intelligent Surveillance

1089 Jordan Creek Parkway, West Des Moines, IA Closure Leased 30 10/31/2011 1401502

Sears Hardware 1146 State St, Lemont, IL Closure Leased Unknown 12/16/2011 849287

Sears Hardware 301 S Barrington Rd, Schaumburg, IL Closure Leased Unknown 10/15/2011 1167677

Vantiv 20 NW 1st St., Evansville, IN Layoff Leased 25 11/18/2011 1540151

Comcast 11988 Exit Five Parkway, Fishers, IN Layoff Leased 57 11/22/2011 5382878

Pace American Enterprises

11550 Harter Drive, Middlebury, IN Layoff Leased 106 immediately

Workhorse Custom Chassis

922 South State Route 32, Union City, IN Closure 173 11/7/2011

Kmart 8040 Burlington Pike, Florence, KY Closure Unknown immediately 5700920

Sears Hardware 82 Carothers Rd, Newport, KY Closure Leased Unknown 11/11/2011 6256677

SAIC 10401 Fernwood Road, Bethesda, MD Layoff Leased 83 10/28/2011 132142


6244 Technology Avenue, Kalamazoo, MI Closure Leased Unknown immediately 1118194

Sears Hardware 15425 Manchester Rd Ste20, Ballwin, MO Closure Leased Unknown 11/30/2011 1164702

Kmart 960 Kildaire Farm Road, Cary, NC Closure Owned Unknown 11/30/2011 7735580

Sears Product Repair 333 North Dr, Plainfield, NJ Closure Leased Unknown 12/3/2011 161821

Kmart 744 S Meadow St, Ithaca, NY Closure Leased Unknown 10/31/2011 6816268

Sears Hardware 2503 Leland Ave, Akron, OH Closure Leased Unknown 12/7/2011 714602

Jim Beam Brands Co (Beam Global Spirits)

7324 Paddock Road, Cincinnati, OH Closure Owned 159 10/28/2011 484784

Sears Hardware 90 Graceland Blvd, Columbus, OH Closure Unknown 11/30/2011 6935962

Sears Hardware 34225 Vine St, Eastlake, OH Closure Leased Unknown 1/7/2012 8202107

Tata Business Support Services

27845 State Route 7, Suite North 200, Marietta, OH Closure 69 11/15/2011

ConAgra Foods 3333 Harding Highway East, Bldg 207-4, Marion, OH Closure 37 10/29/2011

Sears Hardware 1075 State Route 28, Milford, OH Closure Leased Unknown 11/9/2011 7364460

SMG Group LLC/ Campbell Hill LLC

Gas stations, Ohio Turnpike, OH Closure 142 12/1/2011

Sears Hardware 7900 Tylersville Square D, Westchester, OH Closure Leased Unknown 12/15/2011 5567846

Sears Hardware 2821 Bishop Rd, Wickliffe/Willowby Hills, OH Closure Leased Unknown 10/29/2011 7098580

Pace American Enterprises

200 W. Oak St., Lebanon, OR Closure 35 immediately


2270 East Lincoln Highway, Langhorne, PA Closure Leased Unknown immediately 1300065


2209 Whitten Rd, Memphis, TN Closure Leased Unknown immediately 6328949

Sears Product Repair Rebuild Center

3845 Grader St Ste A, Garland, TX Closure Leased Unknown immediately 41783

TeleTech 1400 NE McWilliams Road, Bremerton, WA Closure Leased 240 10/30/2011 674143


Company Address

Closure or Layoff

Leased or Owned


CoStar ID No.

Stimson Lumber 634 Highway 395 S, Colville, WA Closure Owned 67 11/11/2011

Hampton Affiliates 10166 US Highway 12, Randle, WA Layoff 80 10/31/2011

Kmart 6606 N. Division St., Spokane, WA Closure Owned 68 11/6/2011 1164487

Kmart 1058 Milwaukee Ave, Burlington, WI Closure Leased Unknown 11/30/2011 1266045

Sears Hardware 1715 Wisconsin Ave, Grafton, WI Closure Owned Unknown 12/14/2011 1275107

Ingersoll Rand 3600-3609 Pammel Creek Road, La Crosse, WI Layoff Owned 68 11/1/2011 1501971

Fontier Airlines 5300 S. Howell Ave., Milwaukee, WI Layoff Leased 213 11/14/2011 7245585

US Bancorp 777 E. Wisconsin Ave., Milwaukee, WI Layoff Leased 35 11/16/2011 1268644

Golden Living Midwest Billing Office

9045 N Deerwood Drive, Milwaukee, WI Closure Leased 47 12/2/2011 1274394

GE Oil & Gas Operations

3300 Medalist Drive, Oshkosh, WI Closure 90 immediately 7978634

Sta-Care 309 Gillette St., Pardeeville, WI Closure 7 10/22/2011

Sta-Care 811 Hamilton St., Portage, WI Closure 65 10/22/2011

Kerry Inc. 105 S. Maple St., Turtle Lake, WI Closure 24 11/11/2011

Sears Holding - Kmart Store #4376

120 E Sunset Drive, Waukesha, WI Closure Owned 57 1/1/2012 1264879

Sears Full-Line 800 Foxcroft Ave Ste 100, Martinsburg, WV Closure Leased Unknown immediately 1170426

Excelsior LaSalle Affiliate Defaults on Colorado Mall ELPF Northglenn LLC, a wholly owned subsidiary of Excelsior LaSalle Property Fund Inc., defaulted on its mortgage loan collateralized by the Marketplace at Northglenn, a 439,000-square-foot retail center in Northglenn, CO. The outstanding amount of the mortgage loan is $61.3 million, bearing interest at a fixed-rate of 5.5% and is scheduled to mature in January 2016. The loan contains an acceleration clause in which the lender may, without notice, declare the outstanding loan balance immediately due and payable. During the time the default exists, the lender may charge default interest at a rate of 10.50%. The loan is non-recourse to Excelsior LaSalle Property Fund. The originating lender was Morgan Stanley Mortgage Capital Inc., and the loan is part of a pooled commercial mortgage-backed security. The loan has been transferred to special servicing. The property has suffered from tenant bankruptcies, lower occupancy and tenants renewing expiring leases at lower rents. Excelsior LaSalle Property Fund said the borrowing entity will likely relinquish its ownership of this property in a deed in lieu of foreclosure transaction or other alternative including foreclosure in satisfaction of the mortgage.



Loans and Properties Under Surveillance

Watch List: An Assortment of Large Specially Serviced Loans

Property Location Property Type

SF, Rooms, Units CMBS Comment

Silver City Galleria Providence, RI Retail 715,000

JPMCC 2005-LDP4

The property initially began experiencing cash flow issues when Steve and Barry's vacated the premises. The property received an updated appraisal in September 2010 of $56 million. That compares to the current outstanding balance of $124 million.

Creekside Apartments Bensalem, PA Multifamily 1,026

JPMCC 2005-LDP4

The loan began experience difficulties when it converting from interest-only payments to P&I payments in August 2010. DBRS credit rating agency is projecting a loss severity of 57%.

Sterling Pointe Shopping Center Lincoln, CA Retail

JPMCC 2005-LDP4

The borrower's proposal for a DPO was rejected as it was deemed insufficient and the special servicer will proceed with foreclosure.





Property Location Property Type

SF, Rooms, Units CMBS Comment

Papago Spectrum Office Building Tempe, AZ Office 160,000

JPMCC 2005-LDP4

The property was taken REO on November 2010 and is currently being marketed to potential investors. The November 2010 appraisal valued the property at $16.1 million.

Country Creek Apartments Garland, TX Multifamily 296

JPMCC 2005-LDP4

The property's tax exemption status has been lost. The special servicer and the borrower are currently negotiating a solution for these issues.

Alpine Regional Center Alpine, CA Office 46,000

JPMCC 2005-LDP4

The property transferred to special servicing because it was confirmed that the property has been encumbered by a junior lien without lender consent and there has been a default on that secondary note.

Cornerstone Plaza Shopping Center Southlake, TX Retail 26,000

JPMCC 2005-LDP4

The TIC borrower adivsed that it would be unable to to make payments and did not post a $107,000 leasing reserve due, required by the loan documents.

Oaks at St. Johns Apartments

St. Augustine, FL Multifamily 158

JPMCC 2005-LDP4

The loan transferred to the special servicer for delinquent payments. The special servicer has reached out to the borrower, inquiring about the delinquency, but the borrower has not been responsive.

Prince Georges Center II Hyattsville, MD Office

ML-CFC 2006-1

The property is fully occupied by the U.S. Department of Treasury, whose lease expires in September 2012. The borrower has been working to secure a lease extension. The borrower defaulted on the February 2011 payment.

East Thunderbird Square Scottsdale, AZ Retail 162,000

ML-CFC 2006-1

As of the March 2011 rent roll, the property was 47% occupied.

Colonial Mall Glynn Place Brunswick, GA Retail 196,000

ML-CFC 2006-1

The property initially began experiencing issues when Steve and Barry's vacated the premises. There is a receiver in place and a sale is expected to occur in the coming months. An appraisal reduction amount of $14 million was applied to the line in July 2011.

Tidewater Estates Deerfield Beach, FL Multifamily 125

ML-CFC 2006-1

The age-restricted property is owned as a co-operative, with the residents of 40 units owning all of the shares in the corporation.

Country Lakes Apartments Sanford, FL Multifamily 132

ML-CFC 2006-1

The borrower filed for bankruptcy in July 2010 and the lender is reportedly pursuing a note sale.



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