Gramercy Capital Corp. missed the scheduled maturity repayment of more than $790 million in loans, a default which will likely result in an attempt by the lenders to foreclose on nearly 900 properties, consisting mostly of bank branch offices, comprising 25.4 million rentable square feet, the company announced.

The loans are pooled into two groups: $240.5 million mortgage loan with Goldman Sachs Mortgage Co., Citicorp North America Inc. and SL Green Realty Corp. and $549.7 million senior and junior mezzanine loans with KBS Debt Holdings LLC , Goldman Sachs, Citicorp and SL Green.

The loans are secured by mortgages on properties owned by the Gramercy Realty division and by pledges of equity interests in substantially all of the entities constituting the company's Gramercy Realty division. As of Sept. 30, 2010, Gramercy Realty's portfolio consisted of 627 bank branches, 323 office buildings and two land parcels, of which 54 bank branches were owned through an unconsolidated joint venture. The occupancy of the properties was 83.7%.

Cash flow from Gramercy Realty's portfolio, after debt service and capital requirements, was negative and was expected to remain so under the current loan terms it has with its lenders, Gramercy said.

Gramercy Realty's two largest tenants are Bank of America and Wells Fargo, which represented approximately 40.4% and 15.6%, respectively, of the rental income of the company's portfolio and occupied approximately 43.6% and 16.5%, respectively, of Gramercy Realty's total rentable square feet.

Notwithstanding the maturity and non-repayment of the Gramercy Realty loans, Gramercy Capital said it is still in active communications with its lenders and is trying to negotiate an agreement for an orderly transition of all or substantially all of the Gramercy Realty assets to the Gramercy Realty lenders, but with continued management of the assets.

---

 

After three consecutive months in which the U.S. CMBS delinquency rate showed signs of leveling off, the rate re-accelerated in April, according to Trepp LLC and Fitch Ratings.

In February and March, the CMBS delinquency rate posted its smallest rates of increase since mid 2009. Those statistics, along with the view that CMBS lending was beginning to pick up steam, led many to believe that the worst was behind the CMBS market.

In April, however, the delinquency rate for U.S. commercial real estate loans in CMBS increased significantly, jumping 23 basis points. That puts the rate at 9.65% once again, the highest reading in the history of the CMBS market, Trepp data shows.

The multifamily delinquency rate jumped sharply in April, up 56 basis points, and remains the worst major property type with a delinquency rate of 16.77%, Trepp noted.

Lodging delinquency rate headed down falling 52 basis points to 15.45%; industrial delinquency rate spiked 51 basis points to 10.76%; office delinquency rates went up 7 basis points and remains best performing major property type at 7.2%; and the retail delinquency rate moved 43 basis points higher to now more than 8% for first time.

Both Trepp and Fitch noted, however, that there are factors putting downward pressure on the delinquency rate.

Loan resolutions have once again helped cancel out rising monthly U.S. CMBS delinquencies, according to the latest index result from Fitch Ratings.

"While the nascent real estate recovery and elevated loan resolutions are grounds for cautious optimism, it is still too early to say that CMBS delinquencies have reached a peak," said Fitch managing director Mary MacNeill. "There are still several overleveraged performing loans that may potentially slip into payment default, meaning that CMBS delinquency volatility may persist."

With three of the largest five performing specially serviced loans transferring last month, there is considerable uncertainty as to whether these loans will default in the near term, MacNeill said.

"Borrowers have been paying debt service on several performing large loans in special servicing during workout negotiations, but they may cease to do so if they are unable to reach a viable near-term modification," MacNeill said. "Conversely, any modifications or liquidations that remove large loans from the index could push CMBS delinquencies downward."

Trepp said the rise in delinquencies is also being tempered by other factors.

First, as new CMBS issues are added to the data set, the delinquency rate benefits from a larger denominator. And, second, special servicers have been resolving a greater number of troubled legacy CMBS loans than they were 18 months ago. Accordingly, as troubled CMBS loans leave the universe as they are sold off or modified the balance of troubled CMBS loans is reduced. This, too, puts downward pressure on the delinquency rate.

Trepp also noted one factor, however, that has the effect of pushing the delinquency rate higher: the retiring of defeased or performing loans. As those loans leave the pool, the denominator shrinks, thereby pushing the rate higher.

Defeasance among loans backing U.S. commercial real estate securities increased significantly last year over the depressed defeasance activity in 2009, according to Moody's Investors Service.

In 2010 the defeasance of CMBS loans was more than double that in 2009 -- $2.8 billion in 2010 compared to $1.3 billion in 2009. The pick-up in defeasance reflects increased liquidity for commercial real estate assets , Moody's said.

"Defeasance remains an important factor in CMBS credit because it dramatically reduces the risk of potential loss of principal and interest associated with real estate assets by substituting Aaa-rated US government securities for the real estate collateral," said Sandra Ruffin, a Moody's vice president and senior credit officer.

 

GM To Invest $2 Billion in U.S. Plants, Adding 4,000 Jobs

 

Latest List of Bank Closings Link