Tuesday, June 3, 2014

Chicago Skyscraper Needs Special Servicing

The former Sears Tower, now known as the Willis Tower, requested loan modifications from its creditors before entering "imminent monetary default."  I take it this is code for bankruptcy, not having the cash to make principal and interest payments.  Willis Tower's owners flip commercial real estate for profit and include Middle East sovereign wealth funds as investors. Owners include Joe Chetrit and Joseph MoinianCrain's NY Business had this to say about the first Joe:

"Never bet against Joe Chetrit," said Robert Rosania, an executive at Stellar Management, which co-developed five residential rental towers called Columbus Square with Mr. Chetrit and sold off the complex last year for $630 million. "There are very few [real estate] investors in the city of New York who have made as much money as he has in the last decade."

Crain's Chicago Business gave details on Willis Tower's debts:

The senior CMBS loan, which matures in 2017, has nearly $499 million remaining. Including other loans not rated by Fitch, Willis Tower's owners have more than $774 million in total CMBS debt on the tower, according to Fitch.

How much of any packaged debt, rated or unrated, on Willis Tower went to owners and investors via special fees or distributions?

What's interesting is Fitch Ratings doesn't seem to know if owners are truly in trouble or twisting creditors for lower interest rates.

The loan transfer could be a step by ownership to renegotiate terms of the loan, rather than a sign it is prepared to stop making payments.

Imagine a homeowner telling their bank they're in imminent monetary default.  Do you think they'd get a break on their loan?  Hardly.

If there is trouble in the CMBS world it brings back The Carlyle Group's huge mortgage backed securities fiasco, Carlyle Capital Corporation.  It went belly up in a flurry of capital calls.  Not even special servicing could save CCC (and Carlyle warrants lots of special service).

Update 3-15-15:  Crain's reported Blackstone has a preliminary agreement to pay almost $1.5 billion for Willis Tower.  Owners Joe Chetrit and American Landmark Properties paid $840 million for the building in 2004.   This makes the "loan modification" move look more like a creditor shakedown.