Tensions have run high among shareholders since Maguire decided to forego
plans to sell the company in March (see
News Wrap, April 2008). Shortly after,
then-CEO and chairman Robert F.
Maguire III put forth a restructuring plan
calling for the sale of nearly all of the
firm’s assets outside of Orange County,
CA (see News Wrap, May 2008). The firm’s
special committee of independent directors rejected the proposal and ousted
company founder Robert Maguire.
Under new president and CEO, Nelson
Rising, Maguire announced a new plan to
dispose of some of its Orange County
assets to reduce debt. As a part of the plan,
the firm entered into an agreement with
Shorenstein Properties LLC to sell Main
Plaza for $211 million earlier this month.
The asset, which is located in Irvine, CA,
features two 12-story class A buildings and
two freestanding buildings totaling about
607,000 sf.
The sale is among a handful of initiatives to improve Maguire’s financial standing. The company is also in negotiations
with EuroHypo Bank to obtain a short-term, floating-rate loan on its Pasadena,
CA-based properties, Plaza Las Fuentes
and the Westin Pasadena Hotel. Proceeds
are anticipated to range between roughly
$100 million and $110 million and are
intended to provide the company with “an
additional liquidity cushion.”
In the first quarter, the REIT reported a
net loss of $48.6 million, or $1.03 per
share, compared to a net loss of $12.6 million and 27 cents per share for the quarter
that ended March 31, 2007.
No Workout Surge,
But Momentum Builds
Given the dislocation in the real estate capital markets, not to mention changing property valuations in many regions of the country, it may come as a surprise to hear that
workouts for troubled projects have not
risen proportionally, according to an informal survey of experts. Almost everyone,
however, expects that situation to change as
the economic developments of the past
year come to a head.
“There hasn’t been a deluge of workout
activity, but we’re certainly seeing some
cracks in the dam,” says Paul Rubin, a
restructuring specialist at New York City-based law firm Herrick, Feinstein. “We’ve
seen loans closed in 2007 that already needed to be restructured with additional capital
infusions. We anticipate an increase in
workout activity in cases where the underlying property is encumbered by excessive
debt that was a result of the easy-money
lending.”
Steven Marks, managing director and
head of the REIT practice at Fitch Ratings
in New York City, points out that while
there have been some high-profile examples of owners shedding debt-laden properties, such as Macklowe Properties disposing
of several Manhattan trophy assets (see News
Wrap, June 2008), such instances are rarer
than the public thinks.
“While the Macklowe situation
received significant attention, there isn’t
widespread distressed selling,” he says.
“In the near term, we will likely see it
among owners who are facing near-term
refinancing obligations. Given the challenging CMBS environment, owners will
have decreased ability to access that market on attractive terms and may need to
sell assets.”
Meanwhile, Fitch has noticed a slight
bump in loans being shuffled over to special
servicers, “though the increase has not been
dramatic. We have observed a number of
loan transfers due to defaults at maturity,
but most can be attributed to borrower- or
property-specific matters as opposed to
general commercial real estate market
Five Questions for E&Y’s Howard Roth
Starting this month, Howard Roth becomes Are you seeing less US investment in overseas assets?
Ernst & Young’s global and Americas real Roth: It depends on what types of companies you’re talking
estate industry leader after serving as about. If you’re talking about investment funds, whether they’re
Northeast real estate industry leader for a institutionally sponsored or some of the larger private investment
number of years. Replacing Dale Anne funds that have raised billions of dollars in capital, the slowdown
Reiss, who retired at the end of June, Roth will not impact them at all. Funds are continuing to look overseas
will now head up and expand a global real for opportunities and have the people on the ground and the
ROTH estate practice that has 5,000 profession- joint-venture partners to capitalize on those opportunities. And
als around the world. He recently spoke then there are the construction companies, for which there might
with GlobeSt.com editor Ian Ritter about be greater global prospects, particularly with the amount of cap-
his new duties and other topics. (For the complete interview, go ital that’s going into infrastructure in a lot of the emerging-market
to www.reforum.com/globest/upclose070708.html) countries.
How does your job change with the promotion?
Roth: Now I’m responsible for the global business, whereas before
it was just New York City and the Northeast. But being in New York
City has been very positive because of the significant activity that
has come into our industry over the past 15 years, primarily
through the New York-based institutions and private-equity firms.
It’s given me a great opportunity to gain knowledge and establish
relationships around the world.
What sector do you see getting hit hardest by the current
downturn?
Roth: I tend not to look at it in terms of property sectors, but in the
US, there is a de-leveraging happening. The credit markets provided a lot of liquidity over the past several years. Now that we are
moving back to more traditional prudence in underwriting, the
question is, how do you bridge that financing gap? Is it equity from
other sources, such as mezzanine debt or personal guarantees?
What kinds of opportunities is E&Y seeing as a result of the
downturn?
Roth: REITs and a wide variety of real estate companies have had
easy access to credit and bought a lot of assets in the past couple
of years. Now they’re saying, “With this credit slowdown, we have
a chance to wisely absorb all of these acquisitions and focus on our
operations so that we’ll be even better prepared when liquidity
returns to the market.” We’re clearly helping a lot of our clients with
operations, technology and cost efficiencies now that they have a
bit of breathing room.
How do you see this down cycle shaking out?
Roth: To do a deal now, you need more hard equity. There are
stricter underwriting standards and debt is less available. We’re still
in a period of significant uncertainty. A lot has to flush through the
system before we get to the point where the credit market starts
functioning in a more economically efficient manner.
