We all know that the prices paid for commercial real estate in the past reflected a premium for the cheap non-recourse debt available at high LTVs....and that the upcoming cycle of maturing and defaulting loans will reflect significant "deleveraging." In article he wrote for CRE Direct.com, a email news service focusing on commercial real estate and structured finance, my friend, Orest Mandzy, its managing editor, used a recent example of a the sale of Hawthorne Works Shopping Center located in Cicero, IL. The property was sold for $30 million to the Sterling Organization. Prudential had recently sold a $36 million mortgage secured by the property which was "performing" at the time it was offered for sale. The estimate is that the loan traded at a 30% to 35% discount from face.....The property purchase was financed in part with a new $19 million mortgage provided by Unum Group.....As Mr. Mandzy observes: " the transaction is a strong example of the deleveraging taking place in the commercial real estate market. The loan that Pru sold had been performing. But it clearly represented a very high level of leverage for the property, part of a former manufacturing facility that was redeveloped into a shopping center in the late 1980s. What had previously supported $36 million of debt now supports only $19 million." OR JUST OVER HALF THE PRIOR PRINCIPAL BALANCE....This is a preview of things to come....
To access the full article, go to:
http://www.crenews.com/index.php?option=com_content&task=view&id=62515&Itemid= or send me an email at pjones@pyramidrealty.com
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