Showcase Deal

March 2016

AB modification and extension of term


250K sq.ft. suburban office building

The LTV was 185% at time of maturity with no way to pay the loan off in the foreseeable future. The borrower was willing to put in new money to help the property stabilize, but only at the right terms. The borrower would also need time to stabilize the property.



Principal Balance
$38MM

Appraisal at Origination (2006)
$52MM

Appraisal at Maturity (2016)
$20.5MM


Challenge

Two of the top three tenants had lease expirations within a few months of the maturity of the loan. One of the tenants renewed, but at much lower current market terms, while the other tenant vacated. The property was in serious need of capital improvements and it would take $3 – $4MM in tenant improvement and leasing commissions to stabilize the property. The LTV at the time of maturity was 185%.

Solution

By offering the special servicer a solution that entailed sufficient additional funds from the owner, the loan was modified via an AB structure. The A note was placed at $21MM and the borrower contributed the $3MM required for TI and LCs. The remainder of the $38MM note was the B note/hope note. The term of the note was also extended 3 years, giving the borrower sufficient time to stabilize the property. Although it is not likely that the B note will be satisfied, this modification did decrease the amount of ultimate loss the bondholders would take.