Distressed Assets Investor

Distressed Assets

JULY 2010

INVESTOR

Providing Field-Level Guidance on the Acquisition and Disposition of Distressed Assets

An Interactive Digital Newsletter Published by GlobeSt.com & Real Estate Forum

Blackstone/EOP Sets Another Record

Three years ago, the Blackstone/EOP merger set a high
watermark for commercial property sales. Now debt remaining
from that deal is the biggest loan in special servicing.

THE UP-AND-DOWN FORTUNES OF

;

DUBAI

;

A few months after the $3-billion first
mortgage on the Peter Cooper Village/
Stuyvesant Town apartment complex
in New York City first went into special
servicing and then
into foreclosure
proceedings, another
high watermark deal of the current
market has started down a similar
route. The Blackstone Group in late May
transferred to a special servicer the $4.9
billion of CMBS debt remaining from
its $39.2-billion purchase of Equity
Office Properties Trust. It’s reportedly
now the largest loan in special servicing.

In reporting the transfer, Fitch Ratings cited “imminent default” as the reason. Peter Rose, a spokesman for Blackstone, told Bloomberg that his company had begun talks with the lender, Bank of America, on extending the debt. “Special servicing is simply a routine administrative step in order to start these discussions,” Rose said in May. Calls by Distressed Assets Investor for additional comment were not returned by deadline.

The Blackstone/EOP debt, which stems from a single nonrecourse,

BY PAUL BUBNY

interest-only, floating-rate loan
securitized in 2007, is both indicative
of trends in distress and a special case.
On the one hand, “It’s the exception,
rather than the rule,” says Jon Barry,
the Atlanta-based national managing
director of Colliers International’s asset
resolutions team, who was not involved
in any of the deals. “This is a very large
portfolio and is not at all indicative of
the vast majority of CMBS loans in their
present condition.”
Apart from its sheer size—98 office
assets in nine different states—the
portfolio is also unique in that the
properties are still generating enough
income to pay the mortgages, according
to Bloomberg data. By contrast, says
Barry, the more typical CMBS loan
in special servicing is in the tens of
millions of dollars, backed by a deeply
distressed asset.

On the other hand, the transfer of the Blackstone/EOP debt into special servicing bears out forecasts that the office sector will see more distress over time. In March, DAI reported that although office comprised the