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Property Watch List for Dec. 3rd - 9th

A Weekly Report on Potentially Distressed Properties
December 4, 2006
In this week's Watch List, we answer the question: Why are you putting the spotlight on troubled properties? The answer in short is: One landlord's albatross is another investor's potential golden goose. Then we update an item from last week about a property for sale in the wake of a $50 million fraud investigation with new information on the other 270 properties affected by the ongoing court procedures. If you think a new Wal-Mart only impacts mom and pop shops, we tell you how it also is impacting major retail properties in North Carolina and Alabama. Plus we look at other retail centers in Houston and Chicago; apartments in Detroit and Atlanta; and offices in Dallas, Colorado Springs and Philadelphia.

Why the Watch List?

The search for higher returns than can likely be generated by core real estate has led investors to look under every stone and allocate significantly more capital to value-added, opportunistic and turnaround real estate strategies.

Three weeks ago, CoStar initiated this Watch List column to expand on its done deals news and such regularly covered news stories as corporate restructurings and rationalizing of real estate assets to now include properties facing other operating and financial challenges.

The report highlights a handful of such properties each week, as well as reports on the trends in the commercial mortgage arena and the investment activity of the growing slate of real estate opportunity funds.

These funds used to be referred to commonly as vulture funds. However, that really is a bit of a misconception. The larger truth is that one owner's distressed property is another investor's next opportunity.

The column has quickly become a must read. But that still begs the question: Why is CoStar publishing this information?

The answer is threefold.

One is simply because no other major real estate information provider in the country has the capability to even attempt to accommodate the information needs of not only of owners and brokers, but also appraisers, lenders, borrowers and investors in all aspects of commercial real estate. No other real estate information provider has as complete or thorough of database of property information or sources from which to serve the entire commercial real estate industry.

Second, the reporting of property loans that have been placed on a watch list as potential problems is legitimate. The property owner, manager and the brokerage firm are not the only financial stakeholders of property. It includes financial institutions and more and more it also includes the larger investing public who are buying the securities that are supported by the loans on the property. And the information in the watch list is largely assembled from the securities industry's major bond rating agencies and from the nation's largest trustees for commercial mortgage-backed securities.

Third and most importantly, the data itself has intrinsic value both as a lead source for commercial mortgage issuers and brokers and as another valuation source for appraisers, lenders, property owners, managers, brokers and investors.

As a valuation source, it can be used to:

· Establish realistic listing and purchase prices,
· Assess competitive properties, and
· Help perform due diligence.

As a lead generation tool, it can be used to identify properties in need of refinancing, new management, or new ownership by identifying:

· Loans maturing in the near term,
· Properties that have major tenants that may be consolidating, merging or reducing operations, and
· Properties at which revenue streams may be declining.

We think you will find our reporting doesn't cross the line of being sensational or even controversial. We keep each item short and do not identify affected parties other than to identify a listing brokerage firm that is publicly marketing a property for sale. We think you will find the information useful in serving yours or your clients' needs.

Court Appoints Wick, Sitar to Market Portfolio
By: Autumn George

Monmouth County [NJ] Superior Court Judge Alexander D. Lehrer has appointed an alliance formed between Wick Co. and Sitar Co. Oncor International to market a sizable commercial and residential real estate portfolio amassed by indicted real estate developer Solomon Dwek.

According to Robert Paulus, Wick Co. president, and William Sitar, Sitar Realty president, the portfolio of nearly 270 properties is valued at more than $400 million and consists of shopping centers, vacant land, residential homes, and office, industrial, multifamily and mixed-use properties primarily in New Jersey's Monmouth and Ocean counties.

According to the court order, approximately 66 of the properties are currently losing money.

Wick and Sitar have created a website to market the portfolio: www.dwekrealestate.com.

The properties may be sold individually or bundled if suitable as a package.

The agreement is good for six months and includes a six-month renewal option.

Dwek was charged earlier this year by Monmouth County prosecutors with scheming to defraud Pittsburgh-based PNC Bank out of $50 million. According to The U.S. Attorney's Office, he was arrested after misrepresenting himself at two PNC branches, attempting to deposit two $25 million checks drawn from a closed business account. He also attempted to wire a portion of that sum to HSBC Bank to payoff a loan.

The bank fraud charge carries a maximum term of 30 years in prison and a maximum fine of $1 million.

Becker Village Mall, Roanoke Rapids, NC

Becker Village Mall is a 321,000-square-foot anchored retail between Raleigh, NC, and Richmond, VA. The property was transferred to the special servicer in November 2002. Belk vacated its space in October to move to a new and expanding Wal-Mart center 1 mile away. Belk's lease term runs through February 2008. JCPenney’s renewed its lease at Becker Village earlier this year through February 2011.

The Fashion Outlet Center, Boaz, AL

This 125,000-square-foot retail outlet center at 501 Elizabeth St. consists of five one-story buildings with up to 29 store areas. The property became real estate owned in August 2004. The property has lost several tenants due to a new Wal-Mart Center about 1 mile away and competition from other local outlet centers (Tanger Outlet Center and Factory Outlet Center). The occupancy rate is about 45%. The property is to be listed for sale at $3 million with Graham & Co. and will be sold in "as is" condition. A new appraisal is being reviewed. The total loan exposure is about $9.2 million.

French Quarter Apartments, Detroit

The asset at 9531 Faust with 476 units in is currently real estate owned and being marketed for sale. The property is under contract for sale, with the contracted purchaser's review period having expired Nov. 22 and a sale required to be closed by Dec. 27.The total loan exposure on the property is $13.7 million. It was appraised in February of this year at $7.85 million. The properties occupancy is about 40%.

Arapaho Business Park, Richardson, TX

The overall occupancy at this 424,053-square-foot, multi-building office park on North Glenville as of November 2006 had declined to 69.4% from 73% in March. According to the special servicer monitoring the loan on the property, the debt service coverage ratio was at 1.1x.

Mission Centre Shopping Center, Houston

This approximately 110,000-square-foot, neighborhood community center at 14631 Beechnut Drive was foreclosed on a year ago. About half of the property is available for lease and reportedly had good leasing interest from several small prospects. As a result, the special servicer of the property plans to hold on to the asset, at least through next summer.

Marycrest Shopping Center, Joliet, IL

This 137,000-square-foot community center is nearly 50 years old and has been undergoing needed repairs. A foreclosure lawsuit filed in January of this year remains pending while the work proceeds. The court-appointed receiver of the property has appealed the property's current tax valuation based on reduced occupancy. Former anchor tenant Dominick’s grocery store that occupied about 68,000 square feet vacated when its lease expired earlier this year.

Tiffany Square, Colorado Springs

The former 180,000-square-foot MCI call center at 6805 Corporate Drive began its life in 1985 as an enclosed mall but was converted to office space in 1995. The property still includes a theater and restaurant. MCI's lease on nearly 96,000 square feet expired in 2005 and the space has remained vacant. The property was re-appraised in September 2006 in "as is" condition at $11 million. A foreclosure action is ongoing and the timing of that action was estimated to be 45 to 60 days. The state of Colorado then allows an additional 75-day redemption period.

211 S. Gulph Road, King of Prussia, PA

211 S. Gulph Road is a 103,000-square-foot Class A office property renovated in 1998 being marketed for sale at $11 million. A letter of intent has reportedly been executed, and a closing is expected sometime this month. An earlier contract on the property fell through. The property is less than 10% occupied but all of the space is available for lease. Several tenants have expressed interest in the property, ranging from 12,000 to 20,000 square feet.

Madison Hills Apartments, Marietta, GA

Formerly known as Highland Falls Apartments, this 446-unit property was built in 1971 and renovated in 1998. The property became real estate owned in April 2003. The special servicer has executed a letter of intent and is negotiating a purchase and sale agreement. The listing broker is The Wiley Real Estate Group. The property's occupancy has declined due to the closing of several businesses and increased layoffs in the immediate area.

Compiled by CoStar Group from the following sources: Fitch Ratings, Standard & Poor's, Moody's Investors Service, CoStar Property Professional, Securities & Exchange Commission CMBS filings; and CMBS bondholder reports.
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