A foreclosure action is being prepared against CityPlace, the mixed-use center in West Palm Beach, according to a report by New York-based commercial mortgage-backed securities (CMBS) analysis firm Trepp LLC. The main owner of the 756,471-square-foot retail, office and apartment property is New York-based The Related Cos., which is led by Miami Dolphins owner Stephen Ross.
Data sent to Trepp from Miami Beach-based LNR Partners, the special servicer of the $150 million mortgage, indicates that payments stopped in April.
This was the largest past-due CMBS loan in South Florida, and one of the reasons the securitized commercial mortgage delinquency rate spiked to a record high 13.4 percent here in June.
“The CityPlace retail loan is not in foreclosure, and any reports of impending action are simply speculation at this point,” said Jennifer Sullivan, a spokeswoman for CityPlace. “CityPlace Partners continues to work closely with the special servicer to realign the loan and ensure the continued long-term success of CityPlace.”
Trepp analyst Spencer Hollerith said it’s possible LNR could have the CityPlace loan on a dual track for foreclosure and modification. That means the special servicer is preparing to file a foreclosure lawsuit, while at the same time continuing its discussions with CityPlace.
“I can’t say that foreclosure is imminent,” Hollerith said.
Yet, recent developments have made things tougher for Ross and CityPlace. A new appraisal valued the property at $143 million, down from $225.4 million when the loan was made in 2006. Having the loan underwater would make it hard for the special servicer to grant CityPlace an extension without requiring more equity, Hollerith said. At the same time, the loss to the CMBS fund following a foreclosure wouldn’t be that large.
The loan is interest only at 6.27 percent, and doesn’t mature until October 2016. In 2009, the last year CityPlace reported financial results to its lender, it had net operating income of $5.2 million – only half of what it needed to make debt service.
The problem is the loan was based on an appraised value that was simply too large. CityPlace had net operating income of $9.3 million in 2006. Yet, its loan was underwritten that year assuming net operating income of $12.3 million would be achieved later. Instead, it hasn’t been able to charge high-enough rents.
“They would definitely need interest-rate reduction to maintain control of this property,” Hollerith said. “It doesn’t seem like an increase in rents to what they need is coming anytime soon.”