Posts Tagged ‘landlord’

FDIC Walking Away from Leases of Failed Banks

Friday, June 26th, 2009

Troubled Los Angeles-based office REIT Maguire Properties is facing default and currently is in discussions with a special servicer to resolve its financial woes.  The goal is to have the special servicer take over Maguire’s $106 million CMBS financing covering the Quintana office campus it owns in Orange County, CA.  fdic-moneyThe campus’s major tenant was Washington Mutual Bank, which failed last year.

As receiver for WaMu, the Federal Deposit Insurance Company (FDIC) gave up its majority of the Quintana lease effective in March and does not have to pay rent or other compensation connected to the lease termination.  A little-known provision  gives the Federal Deposit Insurance Corporation (FDIC) the authority to break leases between the bank and the landlord once a financial institution has been taken over.  One side effect of this provision could be that we’ll see fewer branch banks in the future as the FDIC breaks additional leases inked by failed banks.

As a result of the FDIC’s ending the lease, the Quintana campus’ occupancy was reduced approximately 250,000 SF to 40 percent.  According to Nelson C. Rising, Maguire’s president and CEO, the FDIC’s rejection of the leases was “a highly unusual and unfortunate event.”

Suburban Office Vacancies Rise

Tuesday, July 15th, 2008

According to a recent Crain’s Chicago Business article, suburban office vacancy rates shot up to 13.1 percent during the second quarter of 2008.  That is the highest level in more than two years. According to the commercial real estate services firm, Transwestern Commercial Real Estate, the vacancy rate is at its highest level since the first quarter of 2006, when it rose to 13.7 percent.  There’s no doubt that demand for suburban office space is in lockstep with job growth or loss; we’re not seeing any job growth in the suburbs right now.

Class A landlords are more likely to accept lower rent deals right now than was true in the last year, but this can be risky.  This has the effect of also reducing the building’s value, because this is a function of the in-place income stream.  Sometimes, it is better to pass on a low rent deal and simply “assume” accepting a higher rent to protect the building’s value.

The sales market has been robust over the past several years, so protecting value has been a priority.  With credit now being largely unavailable, building owners are no longer in the sale market because buyers are unwilling or unable to pay top dollar.  Because we don’t know when the office market will stabilize and since selling isn’t viable at present, landlords may take that lower rent to boost occupancy.

A respectable number of transactions will be completed this year, but only because there is so much low-cost sublease space available.  Additionally, some industries are likely to make positive contributions to the suburban office scene.  Companies providing goods or services to hospitals, physician practices and the senior-housing market are experiencing growth, as are data-center operations and some engineering firms, especially those working with energy production or conservation.