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February 9, 2010 |
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| November 11, 2008 |
By: Polyana da Costa |
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espite a massive global effort to free up credit markets, financing still eludes many big borrowers, including developers of several high-profile projects in South Florida who face looming deadlines to refinance loans.
Billions of dollars worth of commercial loans will come due across the U.S. in the coming months and year, according to the Mortgage Bankers Association of America. And a series of defaults could further batter an economy struggling with record-high residential foreclosures, rising unemployment, and cutbacks in consumer spending.
In South Florida, the refinancing clock is ticking on a variety of projects that need to be paid off or refinanced soon — including offices on Miami’s Brickell Avenue and a site for proposed condos north of the city’s downtown.
“Nobody knows how big of a problem it is going to be yet, but people are anticipating [the lack of refinance in the commercial market] may cause the next shoe to drop,” said Joe Hernandez, a Miami partner with the law firm Hogan & Hartson.
In Miami, Africa Israel Group has a $77 million loan due in June 2009 on 1101 Brickell, an office tower that is home to Banco de Venezuela, according to three sources who asked not to be named.
Africa Israel acquired the property last year from former partner Boymelgreen Development. Africa Israel took over the loan that Boymelgreen obtained in June 2007 from Anglo Irish Bank to acquire the property. Boymelgreen initially planned to redevelop the building into residential condominiums, changed direction and planned an office/hotel project, then decided to stick with the existing office tower for now.
Africa Israel Group executives in Miami could not be reached for comment before deadline Monday.
New York executives of Anglo Irish Bank did not return messages seeking comment.
Africa Israel is facing a November 2009 deadline on another loan, according to a source. That’s when a Mellon United Bank’s $17.5 million loan secured by an office tower the developer owns at Biscayne Boulevard and 30th Street in Miami will mature. The property is the site of the planned Soleil condominium.
Executives of Mellon United did not return calls seeking comment before deadline.
Africa Israel took over the loan after buying out Boymelgreen’s interest in the Biscayne Boulevard office building. Boymelgreen used the Mellon United loan to pay off acquisition financing from Arbor Bank.
Africa Israel will have trouble finding financing if the credit markets aren’t freed up soon, the sources said.
The Soleil project is especially challenging because the property includes a vacant lot. Land has little income potential, making it especially risky collateral for lenders.
Lawyers and financial industry executives say they are busy working with developers and owners who are struggling to refinance loans, especially on office and retail properties.
Steven Beauchamp, president of Mangrove Advisory Group, which assists with loan workouts, said he is in talks with lenders on behalf of a client with two loans on a pair of office towers about to come due. Beauchamp declined to name the projects or developer, citing a confidentiality agreement.
“There are a lot of loans hitting the maturity date,” he said. “And it will be difficult to refinance, especially the commercial properties that were purchased two to three years ago with short-term loans.”
During the development boom that peaked several years ago, developers and investors were comfortable with short-term loans with relatively high interest rates because they expected to refinance at lower rates in two or three years, Beauchamp said.
The problem now is an inability to find institutions willing to lend.
Some industry experts agree its difficult to find refinancing in the current market, dispute the notion that there are numerous loans coming due.
One contrarian is Charles Foschini, vice chairman of CB Richard Ellis Capital Market Group in Miami. He said the majority of financing is longer-term commercial mortgage-backed securities (CMBS), bonds backed by commercial mortgages. Many of the CMBSs now in place won’t come due until 2011 and 2012.
If there is a problem in the credit market around that time, “it will be a huge problem,” he said.
Even if the industry isn’t facing a “huge wave” of maturing CMBS loans, Foschini said, funding remains a critical issue for commercial property owners and developers.
“It is not as widespread as it is thought to be, but if you have a loan coming due and have to refinance today, there is basically no viable, dependable lending market at this point,” Foschini said.
According to a March 2008 report by the Mortgage Bankers Association, of $600 billion worth of commercial loans that JPMorgan and Wachovia Capital Markets have on their books, only about $35 billion is to mature in 2008 and 2009. About $98 billion of financing is to mature in 2015, and the rest comes due in 2016 and 2017.
Locally, because of a robust commercial real estate market in 1999 and 2000, a number of 10-year CMBS loans are about to mature, according to Howard Taft, managing director of Cohen Financial in Miami.
And CMBS loans, he said, could be more difficult to refinance than short-term loans.
“These CMBS loans have been sold and are now held by investors or trustees. Unlike short-term loans [which are normally held by the bank], there is no bank to negotiate with here,” Taft said.
Taft is working on behalf of a client he would not identify to obtain refinancing for a retail property in South Florida. Under normal lending conditions, his client could easily refinance at an 80-20 loan-to-value ratio.
Now, however, those lenders still making loans demand borrowers have greater equity in the property.
Taft said this is a problem, particularly for owners who originally borrowed as much as 80 percent of the value of the property. In today’s market, if they are interested in refinancing, lenders won’t lend more than 60 to 65 percent of the value of the property.
Hogan & Hartson attorney Hernandez predicts many lenders will likely grant extensions to borrowers who have short-term loans, since they don’t want to take title to the properties if they go into default.
But there were numerous short-term commercial real estate loans already refinanced three years ago. They are maturing again.
Add the fact that some properties have declined in value and lost tenants, and the situation is worse.
As maturity dates approach — and if the credit crisis lingers — the commercial foreclosures will soar, predict some industry experts.
“Anybody whose loans are maturing in this market is at risk to losing the property to the lender,” said Andrew Hellinger, principal of consulting firm Liberty Pointe Advisors.
The number of foreclosures will not be on the same scale as those in the residential market, but they will happen, Beauchamp said.
“With commercial properties, you have the ability to reposition the assets; there is cash flow,” he said. “But if the credit market continues to be frozen, what you are going to see is values dropping and a lot of institutional money coming in” to buy distressed properties.
Still, commercial foreclosures in South Florida remain low. There are 104 multifamily properties in some state of foreclosure in Miami-Dade County, according to Propertyshark.com, a Web site that tracks commercial foreclosures. There also are 18 commercial condos, 13 industrial, three mixed-use, six retail and six office properties in foreclosure in the county.
The company does not survey commercial foreclosures in Broward or Palm Beach counties.
Aside from the multifamily properties — which are mostly a result of failed conversion or financially troubled residential developers — retail, office and hotels are especially vulnerable to refinancing and foreclosure problems.
“Hotel occupancy rates are down, retail and office buildings are losing tenants,” Hernandez said. “That impacts the cash flow and the ability to refinance. We are going to really see the extent of the problem in the first quarter of next year.”
Polyana da Costa can be reached at (561) 820-2065.
1101 Brickell photo by A.M. Holt
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