CRE “Recycling”

This report today from Trepp give us a peek into one of the largest CMBS loans ever structured, a $2.6 billion loan that was funded across six big CMBS trusts. It lends truth to the old maxim that if you borrow large, the lenders are stuck with you. The loan was extended for five years in 2010, when the CRE market was at it grimmest and financing was not to be (easily) found. Had it matured in 2012, the original maturity date, it is doubtful they could have paid it off. Basically they are dismembering this deal, selling off properties as the opportunities arise. Recycling? Think of it as a long-term workout.

 Over the last 18 months, we’ve written many times about the $2.6 billion Beacon Seattle and DC Portfolio loan. The loan was one of the biggest ever in CMBS. It was originated in 2007 and was split across six CMBS deals.

The loan was originally set to mature in May 2012 but was modified in late 2010. At the time, the borrowers were granted a five-year extension along with significant rate relief. The portfolio was originally backed by 20 properties. As part of the modification, properties were permitted to be sold without the borrower having to pay a prepayment penalty.

A number of the properties have been spun off over the last 15 months. Among the properties sold off are the Market Square office building in Washington, D.C., the 1300 N. 17th Street office in Arlington, VA, the Liberty Place office in Washington, D.C., and the 1616 North Fort Myer Drive property in Arlington, VA.

In each case, the sell off has meant a partial prepayment (with no accompanying penalty) and a small loss for each of the six deals backed by this loan.

This week, a number of outlets were reporting that another property had been sold. The City Center Bellevue property was sold by Beacon Capital Partner for $229 million according to Commercial Real Estate Direct. The buyer is said to be American Assets Trust.

As we’ve noted in the past, the first pay class (or classes) should see another early principal payoff from this sale over the next month or two. Accordingly, a premium purchase price for some of these early pay bonds could carry some short term risk. Since the loan still has 58 months until maturity, it is possible that other tranches from the deals backed by the loan could see their average lives move significantly over the next month or two.