News About big bear city real estate
Bank of America and a group of lenders are moving to foreclose on the retail and transit portion of the mixed-use development, claiming Chicago developer Joseph Freed and Associates LLC has, in essence, run out of money, according to a lawsuit filed Monday in Cook County Circuit Court.
Meanwhile, in Cupertino, Calif., the Cupertino Square Mall is being liquidated after the lender foreclosed on the property.
The terms “commercial real estate” and “next shoe” generate more than 29,000 hits on a Google search .
Our story points out:
Borrowers that can’t put up more of their own equity will be in trouble, especially as occupancies and rents continue to erode. Already, about 100 banks have failed in 2009. Moreover, while most residential real estate debt was concentrated at the largest banks in America, commercial real estate debt is spread all around and will create messes all year that the FDIC has mopped up. It means there will undoubtedly be defaults by borrowers and problems at banks as they foreclose on properties. There’s more of that to come. That’s what FDIC Chairwoman Sheila Barr is talking about when expressing concerns about commercial real estate debt.
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The Fed finds itself in the unusual situation of being an Oklahoma City landlord after it lent JPMorgan Chase $29 billion to buy Bear Stearns last year.
That money was secured by a portfolio of Bear assets. Crossroads Mall is the only bricks and mortar acquired through bailout. The remaining billions are tied up in invisible securities spread across hundreds, if not thousands, of properties.
For the past few months, there’s been a drumbeat that it’s just a matter of time before commercial real estate collapses and wreaks havoc on the economy. The thought is that the mountain of commercial real estate debt coming due in the next few years will trigger a second wave of the credit crunch as an avalanche of losses rumbles through bank balance sheets. This, in turn, will derail the momentum the economy has had in recent months as it begins to recover from the deepest and longest recession since the Great Depression.
Mall owners Cupertino Square LLC and Vallco International Shopping Center had failed to make adequate protection payments of approximately $780,000 to Gramercy in March and April after filing Chapter 11, according to Richard Lapping, who represented Cupertino Square in bankruptcy court. Orbit Properties LLC was the main stake holder in property.
Lastly, the Block 37 project in development in Chicago is facing foreclosure .
The main evidence for this view includes data points such as the fact that commercial real estate values are off by 40 percent from market peaks and that there is approximately $3.4 trillion in commercial mortgage debt outstanding. Of that, about $1.4 trillion will come due by the end of 2012.
The banks have been negotiating with Freed since March, when the developer technically defaulted, the lawsuit said. Since then, cost overruns had reached “at least” $34 million as of Aug. 25, court documents said. Freed owes $128.5 million on a $205 million construction loan, the filing stated.
Freed issued a statement Tuesday calling the banks’ lawsuit a “misguided action that could halt the project” and make it “near-impossible to restart.”
In our newsletter today, we talked to economists who have a different view. It’s not because there aren’t problems. The questions are what the scale of those problems will be and what effect they will have on the financial system and the economy.
The bankruptcy court converted the case to Chapter 7 and ordered the mall’s liquidation on June 26. Gramercy gave Cupertino Square mall owners a $195 million construction loan in 2006 and claimed the owners still owed them $113.8 million.
[C]redit markets are barely out of hibernation mode. Today, borrowers have to put more of their own equity into a deal and lenders have tighter standards. That means indebted owners can’t sell a property and repay their mortgage with deal proceeds. Loan-to-value (LTV) ratios are not only lower than they were at market peaks, but have to be based on the current value of the property, which is lower than it was a few years back. It also makes refinancing difficult. That means a bank might want to replace an 80 percent LTV mortgage on a property once worth $10 million with a 60 percent LTV mortgage on a property now worth $6 million.
Indeed, there are no less than three stories today that illustrate the kinds of problems that will result from issues in commercial real estate. Reuters has a story of about a mall that is now owned by the Federal Reserve Bank .
Gramercy Warehouse Funding I LLC now owns the property at 1023 Wolfe Road. The New York-based lender foreclosed on the property and purchased it for $65 million at a trustee sale in May.
big bear city real estate
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The great BC real estate bust
In step with a surprising countrywide real estate resurgence, the pace picked up a little this spring, but in August there remained sufficient listings to
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