The commercial property mortgage industry is starting to heat up as lenders are trying to protect their investments from the expected flood of troubled mortgages reaching maturities.
Mezzanine loan holders are exercising their options to force overleveraged owners into foreclosure listings in an effort to gain control of the troubled properties. Similarly, real-estate investment trusts (REIT), asset managers, private equity firms, investors and other players holding mezzanine distressed loans have been raising funds to purchase senior positions in mortgage debts.
Some mortgage REITs went public expecting a wave of foreclosure home investors and low interest government financing made available to investors who are willing to purchase mortgage loans held by banks.
According to industry experts, the estimated $100 billion outstanding mezzanine loans and B-notes are just a fraction of the nearly $3.5 trillion outstanding commercial mortgages in the country. But the market has caused disputes between senior and junior mortgage servicers holding small shares.
Experts added that the market has grown big and complex since the straight loan structures in early 1990s. They explained that mezzanine lenders’ intervention is just a natural way for the market to dispose of troubled assets.
Experts observed that early this year, mezzanine lenders were not entitled for ownership position. But now, they are pushing out debt equity operators in troubled properties as part of the repossession process.
This only means that the equity has been completely wiped out, according to experts. They added that mezzanine lenders are intensifying their efforts to solidify their ownerships as part of their strategy while trying to wait out for the value to recover.
Recently, there have been notable foreclosure deals in the commercial property industry, including hotels, retails, offices, mixed-used properties and condominiums.
One major foreclosure deal involved mezzanine lenders Five Mile Capital Partners and Normandy Real Estate Partners. They took over the John Hancock Tower in Los Angeles, California after acquiring discounted shares of the troubled debt.
In another deal, Fortress Investment Group acquired the condominium project, Sheffield57 for about $20 million through a mezzanine foreclosure auction. Credit Suisse First Boston took ownership of the first mortgage worth $400 million followed by Guggenheim Structured Real Estate Partners LLC for nearly $240 million in mezzanine loan.
And just this month, Wachovia Bank filed a foreclosure action against BF Las Olas and BentleyForbes Holdings, developers of the Fort Lauderdale, Florida-based Las Olas Center.
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