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Q&A: Cassin & Cassin’s Michael Hurley at CREFC Miami

Just as breakfast wrapped up on the first day of the Commercial Real Estate Finance Council’s January conference on a windswept morning at the Loewes Miami Beach Hotel, Commercial Observer stole half an unbilled hour for a breezy conversation with Michael Hurley Jr., newly promoted managing partner at Cassin & Cassin. Pushing back against some antsy developers we spoke with last week, Hurley discussed why he thinks New York investors won’t quit the local scene anytime soon.

Commercial Observer: What are you working on down here when you’re not meeting with reporters?

Michael Hurley: It’s an opportunity for us to meet with clients that we otherwise wouldn’t have access to in New York. All of our clients are here, so it’s a great sponsorship opportunity for us. We catch up with existing clients, and meet new people. We’re here to network.

Any questions you’re hoping to developing your thinking on?

When it comes to the business cycle, I’m looking for more insight into what inning the experts think we’re in, and how they feel the tax reform is going to impact commercial real estate finance. It would make sense that the measures taken [in the reform] would be good for commercial real estate investment.

Everyone seems happy to have escaped the weather up north for a few days. Do you think industry sentiment is moving away from the city in general?

I don’t sense a move away from New York. People feel that New York is the safest place to invest your money. If anything, there’s maybe a move away from some of the sand states [in the American Southwest]. The concerns there are overdelopment, oversupply and decrease in demand. And the retail sector is certainly an issue too. Was it Macy’s that just said they would lay off 5,000 people? That’s a major issue.


Source: commercial

City Reaches $1.2M Settlement With Landlord Accused of Illegal Airbnb Rentals

After being sued by the City of New York for allegedly allowing illegal short-term rentals in his apartment buildings, a Midtown landlord will pay a record-breaking $1.2 million to the city as part of a settlement in the three-year-long lawsuit.

Owner Salim Assa of Assa Properties will have to shell out the cash within 30 days, under the terms of the agreement reached with city lawyers yesterday. The settlement prevents Assa from “advertising, booking, permitting, conducting and maintaining” rentals of less than 30 days, which are prohibited in apartments under state law, in his four residential properties at 15 West 55th Street, 19 West 55th Street, 334 West 46th Street and 336 West 46th Street.

The landlord will also be forced to appoint professional property managers to operate the buildings and collect rents for the next three years rather than do it himself. But if he sells the buildings, the new owner will not be required to keep the property manager on. Finally, the city reserves the right to make unannounced inspections in the buildings to ensure that neither tenants nor Assa are flouting the law by short-term subletting their apartments on the sly.

Despite the financial hit, the settlement represents a small victory for Assa. In October 2017, he faced the possibility of defaulting on mortgages totalling $81.5 million for two of the four buildings when a state supreme court judge ruled that a receiver would manage them. A $1.2 million penalty doesn’t seem like much of a hardship by comparison.

The Mayor’s Office of Special Enforcement, which investigates illegal Airbnb cases, touted the settlement as the largest financial penalty ever imposed on a landlord in an illegal hotel nuisance abatement lawsuit. The second-largest was in 2013, when the city won a million-dollar settlement against Smart Apartments, a hotel operator that rented illegally converted apartments to tourists across more than 50 buildings in New York City.

“By exacting steep penalties and requiring landlords to hire law-abiding property managers, we will stop property owners who fail to obey the law,” said OSE Director Christian Klossner in a statement. “This case is a good example of the work we do to protect permanent housing, New Yorkers and visitors from the dangers of illegal hotels.”

The nuisance abatement law was originally created in the late 1970s to combat prostitution in Times Square. However, city enforcement agencies and the New York Police Department have used nuisance abatement actions to shut down illicit activity of various stripes, including drug dealing in apartments, bodegas selling alcohol to underage kids, and illegal hotels.

“We are hotel owners here in New York,” Assa said in a prepared statement, referring to his Cassa Hotel & Residences in Hell’s Kitchen and the MAve Hotel in NoMad. “It would be against our self-interests to knowingly let tenants turn to Airbnb, a service which competes directly with established and regulated hotels in the city. We also support initiatives to keep tenants safe by ensuring that all residents are subject to full background checks, and Airbnb does not enforce these standards.”


Source: commercial

Tribeca Clock Tower Building Case Opens Up Potential for More Interior NYC Landmarks

A state appellate court decision issued this week involving the historic Clock Tower Building at 346 Broadway in Tribeca will make it easier for the city to landmark the interiors of buildings and reinforce the requirement that interior landmarks must be open to the public.

Yesterday, a five-judge panel upheld a March 2016 decision that prevented developers Peebles Corporation and Elad Group from converting the unique clock tower at 346 Broadway into a residential condominium. The giant mechanical clock is the largest of its kind in New York City and sits atop a late 19th-century, 13-story office building designed by McKim, Mead and White between Leonard Street and Catherine Lane.

A group of local historic preservation organizations—including Tribeca Trust, Save America’s Clocks and the Historic Districts Council—sued Peebles and the city in June 2015 in Manhattan Supreme Court in an effort to block the conversion of the clock tower suite. The city’s Landmarks Preservation Commission issued a certificate of appropriateness in May 2015 that allowed the developers to renovate the clock tower, electrify its mechanism and turn it into a condo, which wouldn’t be accessible to the public. The local activist groups filed suit a couple months later and ultimately scored a victory in Manhattan state supreme court.

Lynn Ellsworth, chairwoman of the Tribeca Trust, proclaimed, “The victory is ours and it is sweet.”

“What’s really exciting to me is that the public will still have access to the clock tower,” she said. “There’s all kinds of easy ways for the developer and owner to do that, and they should have done it from the beginning.”

When contacted for comment, the city Law Department responded, “The court was divided in its ruling, 3-2. We are evaluating next steps.”

Although the clock tower had been open to the public since 1918, the Peebles Corporation sought to convert it into a triplex penthouse. The move would be a clear violation of city rules surrounding interior landmarks, which require that such spaces must be open to the public regularly. The owners of the landmarked Four Seasons Hotel sued the city over the public access issue in an unrelated case in 1993, and the courts decided that a landmark interior must be open to everyone on a “ordinary or habitual” basis.

“I think what’s significant about this case is that it’s set a new standard, contrary to the practice for over 50 years,” said Frank Chaney, an attorney at Rosenberg & Estis who was cited in the appellate decision. “While for an interior landmark being customarily open and accessible to the public was a requirement of being a landmark, it was never the obligation of the owner to keep it that way. This decision says once open and accessible, the designation requires the owner to keep it open and accessible now and forever.”

However, the decision doesn’t spell out how often a historically protected space must open to the public. It could open once a month, once a year or once every couple years. The ambiguity means that an exact time frame for public access will probably be fought out in court at a later date, Chaney explained.

Conversely, the decision also opens up the possibilities for what kinds of spaces can be landmarked. Historic places that are only occasionally open to the public for events and tours—like the Yale Club and the Masonic Hall—could now qualify for landmark designation. The previous rules mandated that an interior landmark be open to the public on a regular basis, and any owner that wasn’t willing to do that could not have their property considered for landmark protection.

Chaney also wondered whether owners that open up their historic buildings every once in a while will start shutting out the public, because they’re afraid their buildings could be landmarked.

“If this decision results in them being concerned that ‘If i keep doing this am I going to get landmarked? [Then] maybe I better not let people come up here anymore; maybe I better close this to the public,’ ” he said.

Peebles and Elad did not immediately return requests for comment. The two developers purchased the Neo-Italian Renaissance property from the Bloomberg administration for $160 million in 2013. They filed plans with the state to renovate the building into 151 luxury condos, 35 of which have to be sold by August 2018 or the city can take back the property, The Real Deal reported earlier this year. The firms sued each other last year, each alleging that the other had attempted to sabotage the project. Those lawsuits were recently settled, and the owners began marketing the condo project under the name 108 Leonard earlier this month.


Source: commercial

Lender Moves to Push Defaulting Soho Developer Into Bankruptcy

Churchill Credit Holdings, a small Manhattan real estate lender, has filed a petition for the U.S. Bankruptcy Court of the Southern District of New York to push a Soho lot’s developer into involuntary bankruptcy, according to court papers obtained via Nationwide Research Company.

The lender claims that it is owed nearly $14 million from 74 Grand St. Equities, a corporation whose only asset is a small lot. The site, at 74 Grand Street, between Wooster and Greene Streets, was slated to house a six-story, four-unit residential condominium with ground-floor retail, according to Churchill’s website.

But according to the bankruptcy petition, the site—originally slated for mid-year 2018 completion—remains vacant and unimproved this month, with construction stalled. Meanwhile, Churchill claims in court documents that the developer began to miss loan payments in August on three separate rounds of funding, with an unpaid balance that now exceeds the lot’s appraised value, $12.5 million.

“Normally when a developer is in distress and is not paying the senior lender, or the senior lender is worried about not getting repaid, the lender tries to foreclose on the property,” said Adam Stein-Sapir, a co-managing partner of Pioneer Funding Group, which specializes in analyzing and investing in bankruptcy cases, and who is not involved in the case. “But in this instance, they filed an involuntary bankruptcy case. That’s unusual.”

Stein-Sapir speculated that the move for bankruptcy—a more onerous process than a foreclosure sale, because it requires the participation of at least three creditors—could have been triggered by an apparently ongoing ownership dispute surrounding the lot.

Details remain fuzzy, but Churchill’s petition refers to a question of whether the property’s ownership changed once Churchill extended the developer’s credit. Property records provide little additional transparency. Churchill and its attorneys did not immediately return a request for comment and 74 Grand St. Equities wasn’t immediately reachable.

All sides seem to agree that the lot was initially owned by Gayle Dunne and Sean Dunne, who spun it out into a closely held limited-liability corporation while remaining the owner’s agent for the construction process. But, the bankruptcy petition alleges, after the Churchill financing closed on March 3, 2006, Gayle Dunne and another Dunne family company, Mountbrook, may have shuffled the lot’s equity ownership among several new stakeholders.

“I think [the reason for the bankruptcy petition] is because of the ownership disputes,” Stein-Sapir said. “I’m speculating a bit here, but if they just went to foreclosure sale, these ownership disputes could present issues.”

Sean Dunne, a prolific Irish developer, has faced strife in the past decade both in his native country and in the U.S. In a 2014 report it called “The American Maze of a Bankrupt Empire,” The Irish Times detailed how failed ventures had led to Dunne’s debts of $942 million in 2014. The newspaper wrote that Dunne spent almost 400 million euros (about $475 million) on properties in Dublin in the mid-2000s, which crashed in value during the financial crisis.

To meet U.S. bankruptcy law’s requirement that three creditors join the petition for involuntary bankruptcy, two other firms involved in the construction, Equity Environmental Engineering and Damo Construction Company, participated in the filing as well. Equity Environmental claims that the developer owes it about $12,000, and Damo alleges debt of $41,000.

Now, the 74 Grand developers will have a year and a half to suggest a reorganization plan.

“But they can get many, many extensions,” Stein-Sapir said. “The U.S. bankruptcy code is very debtor friendly.”


Source: commercial

Regulators To Clarify Which Real Estate Loans Are Considered Dangerous

A proposed rule on how banks should calculate the amount of equity they need to hold to compensate for construction loans and other precarious debt could bring transparency to a years-old regulatory tangle, according to a report by EY.

The rule, known as high volatility acquisition, development and construction, or HVADC, “clearly achieves its purpose of clarifying the definition” of volatile construction loans, wrote the author of the report, Joseph Rubin, a principal at EY. Even so, Rubin warned the clarification might force banks to treat a yet wider swath of loans as risky, raising their costs of compensating for the potential downside.

Though it will be implemented by the Federal Reserve, the Federal Deposit Insurance Corporation and the Treasury Department’s Office of the Comptroller of the Currency, the regulation’s logic stems from an international review of banking practices that played out in Europe after the financial crisis.

In 2013, concerned about how quickly construction and development loans had rotted on banks’ balance sheets during the financial crisis, the Basel Committee on Banking Supervision updated its model regulatory guidelines with the Basel III standard, nudging banks to account for their debt assets more conservatively.

Among stacks of other measures, the watchdog suggested requiring that banks overweight construction and development loans on their balance sheets. In counting these loans at 150 percent of face value, banks would need to compensate by holding a correspondingly higher level of equity to achieve the required ratio of equity to assets, reducing the risks they’d face if a large group of their borrowers defaulted. The Federal Reserve implemented the construction-loan rule for U.S. banks, along with most of the rest of the recommendations.

But the U.S. rules for construction and development lending that emerged from the agreement, called high volatility commercial real estate, or HVCRE, were difficult to interpret, according to EY.

“There were many questions that came out of the original rules,” Rubin said in an interview. “The problem is that since real estate lending is so specialized, how to apply to the rules to any particular structure often gets complicated.”

Such was the confusion that U.S. bank regulators saw fit in 2015 to offer a clarifying document answering banks’ frequently asked questions about the regulation—nearly four dozen of them.

Finally, in September, the trio of regulators responsible for the rules announced that a rewrite could be in order. Under their proposal, the definition of risky loans that should be overweighted in banks’ accounting would expand to include any loan that primarily finances or refinances acquisition, construction or development with a handful of exceptions for small residential properties and agricultural and community development.

If just over 50 percent of a loan finances these activities, it should be included, the proposed rule states. The current regime leaves that question ambiguous.

To compensate for the broader scope of debt that would qualify, the loans would be counted at 130 percent of their value, instead of 150.

In its report, EY remains agnostic on what the effects would be, noting that much depends on whether banks would pass on any higher capital costs they face to borrowers, or simply accept the changes as an increase in “the cost of doing business.”

Rubin said he would be watching closely to see how the changes propagate through the real estate industry.

“Many banks today are very well capitalized. [The proposed rule] may or may not impact them,” he said. “As always, [borrowers] will shop around, trying to find the lowest price. If prices rise across the board, that will impact profitability.”

Other analysts wondered whether the new rule would also stir regulators to take a harder line against granting exceptions.

Christopher Whalen, a bank analyst and the chairman of Whalen Global Advisors, explained that though the capital regulations appear binding, banks that maintain a genial relationship with regulators can often angle for a hall pass, winning approval to maintain a mathematically riskier balance sheet that the letter of the law permits.

New York Community Bank, for example, a lender that originates commercial real estate and multifamily housing debt, is “way over guidance” on the quantity of multifamily debt on the ledger, Whalen said. Under the existing framework, the analyst explained, the bank has worked with the FDIC to clear its positions, but it remains uncertain whether that flexibility will remain available under the new set of rules.

“There are a lot of banks out there who are way out of limits,” Whalen said. “It will be interesting to see if banks like that have to change their business model.”

New York Community Bank did not respond to a request for comment.

Bankers hoping for regulatory generosity have until Christmas to submit their comments on the proposal to the rulemakers, who analysts expect will announce their next move early in 2018.

In the meantime, taking a broader view, Whalen was optimistic about the underlying risk profile of banks’ construction and development activity—especially when it comes to multifamily housing.
“In major urban areas, these multifamily projects, they’re well constructed and maintained,” Whalen said. “There’s always an investor base for that.”


Source: commercial

Judge OKs Plan to Take Control of Landlord’s Properties for Illegal Airbnb Activity

A state appellate court has approved the city’s plan to take over a landlord’s properties after he allegedly failed to prevent his tenants from Airbnb-ing their apartments.

In August, Manhattan Supreme Court judge James d’Auguste found Salim Assa, the owner of several Midtown rental buildings, guilty of contempt of court after a two-year-long legal battle with the City of New York, as Commercial Observer previously reported. The city had originally sued Assa in early 2015 for allowing illegal hotel activity to occur in his buildings at 15 West 55th Street and 334 West 46th Street. When New York City Department of Buildings inspectors swung by a couple times in 2016, often accompanied by police officers, they discovered a few more tenants illegally subletting their apartments to travelers on a short-term basis. Those violations became the foundation of the contempt judgement handed down in August, and as punishment, d’Auguste stripped Assa’s legal control over his buildings.

Although Assa’s lawyers asked the appellate court for a stay of enforcement to prevent that process from going forward, the appellate court denied the stay on Monday. However, their appeal against the contempt judgement will go forward in court.

Now the state court will appoint a receiver to manage the two Assa-owned properties at the center of the lawsuit. The receiver, a lawyer named Darren Marks, will operate the two buildings and collect rents. Receivership creates a major financial burden for Assa because it qualifies as an automatic default on the mortgages for those buildings.

“This decision shows that in extreme cases where landlords continuously flout the law and the court order, despite receiving multiple violations and an injunction, the city can and will step in to protect its housing stock for New York families,” Catherine Wan, the deputy director of the Mayor’s Office of Special Enforcement, which pursues anti-Airbnb and illegal hotel cases, said in a statement.

Assa wouldn’t be able to sell either of the properties during the year-long receivership, according to an OSE spokesman.

“We would only clarify that this has absolutely no bearing on the ultimate outcome of this matter,” a spokesman for Assa said in a statement. “We believe we have a strong case that will prevail on the merits, and we’ll move forward in presenting that case.”  

Assa is one of several landlords who have been branded the city’s worst violators of anti-Airbnb and hotel laws. Over the past three years, the city has sued a handful of property owners who racked up the most illegal hotel complaints, typically filed by tenants or neighbors. In an effort to crack down on illegal short-term (less than 30 day) rentals in residential buildings, the mayor committed $2.9 million to the Mayor’s Office of Special Enforcement and added 16 staffers to the 32-person agency earlier this year. Although OSE was originally created to tackle issues like drug dealing and prostitution, it now focuses most of its efforts on owners and tenants violating the state’s anti-Airbnb laws.


Source: commercial

Delshah Capital Skirts Multimillion-Dollar Rent Credits Bill With Free People

After Free People was delayed in opening its Meatpacking District store by roughly a year, the retail company demanded that its landlord provide $3.2 million in free rent based on a lease provision. Last week, a Supreme Court judge ruled that the landlord, Delshah Capital, owed its tenant at 58-60 Ninth Avenue $650,000, roughly 20 percent of what Free People sought, because as the judge said, the “free rent clause is an unreasonable penalty.”

“I think the message that the judge was sending is, you can’t put a clause like this in the lease and expect a court to enforce this if the amount of damages suffered was significantly less than the amount of the penalties provided for by this lease clause,” Bradley Silverbush of Rosenberg & Estis, Delshah’s attorney, told Commercial Observer.

On March 13, 2015, Free People, a brand of Urban Outfitters, leased ground and lower level retail space at the base of the 10,839-square-foot building at 58-60 Ninth Avenue with a delivery date of Aug. 1, 2015, court documents show. The 6,800-square-foot lease was for 10 years with a taking rent of $110,416 per month, Silverbush said. The apparel and lifestyle retail company planned to open that December, but didn’t actually get the space until July 12, 2016.

After opening in early December 2016, the store underperformed and the company claimed the delayed opening caused it to miss the 2015 holiday retail season, undermining online sales and damaging its reputation and stock price. As a result, it wanted to cash in on its rent credits, which graduated over time from one day of free rent (for each day of late delivery) to two days and then three days. Using that formula, Free People concluded it was owed 825 days of rent credit totaling nearly $3.2 million.

Free People’s analysis of the profit potential at the location showed that the first fiscal year of operation executives anticipated a target return of $1.1 million, with a worst-case scenario of $57,386. In 2016, sales dropped at the two other Free People stores in Manhattan. And at the unnamed location which Free People considered to be comparable to the Meatpacking one, sales dropped 50 percent, according to the judge’s decision.

“They tried to prove they lost money by not opening,” Silverbrush said. “We argued they saved money by not opening” because of the state of the retail market. And the retail climate was something the judge noted. “Free People was not immune to the severe decline in retail sales at brick-and-mortar stores in the New York City market,” he said.

So while the judge acknowledged “the defendant could and should have proceeded more expeditiously with the very ambitions construction project necessary to transform two landmark buildings into a combined structure that would accommodate” the retailer, he claimed the damages the plaintiff actually suffered were far less than the damages called for in the free-rent provision.

Free People “overestimated the potential profitability of the Ninth Avenue location and it would be unjust to enforce a penalty on the defendant that would be grossly disproportionate to any financial harm plaintiff actually suffered from the delay in delivering the store,” the judge said.

While the case is not precedent-setting, it could impact how landlords and tenants contemplate leases, especially Free People. Free People includes “a substantially identical ‘free rent’ provision in the leases for more than 100 of its stores across the country,” court documents indicate.

DelShah acquired 58-60 Ninth Avenue in April 2013 for $18.2 million, as CO reported at the time. Michael Shah, a principal at DelShah Capital, didn’t respond to a request for comment, and nor did Urban Outfitters or Free People’s attorney, William Connolly of Drinker Biddle & Reath.


Source: commercial

Raphael Toledano Seeking Bankruptcy Protection for $40M Chelsea Property

Raphael Toledano’s Brookhill Properties is seeking Chapter 11 bankruptcy protection for a rental building at 125 West 16th Street between Avenue of the Americas and Seventh Avenue that is valued at $40 million.

The filing comes the same week that Madison Realty Capital sold its $34 million in debt on the property, and eight days after Brookhill signed a sale agreement with AAK Acquisitions LLC, according to yesterday’s filing in the United States Bankruptcy Court for the Southern District of New York obtained via Nationwide Research Company.

Brookhill acquired the six-story, 39,504-square-foot building on April 23, 2015 for $41.5 million, property records indicate, with a $29 million mortgage (plus $5 million for renovations) from Madison Realty Capital. The financial institution retained the loan until this Tuesday, according to Josh Zegen, the firm’s co-founder, when it was sold to an undisclosed entity.

“Because we no longer have a position we are not affected by the bankruptcy,” Zegan told Commercial Observer.

Toledano wasn’t reachable and A. Mitchell Greene of Robinson Brog Leinwand Greene Genovese & Gluck, attorney for the debtor in the bankruptcy filing, wasn’t available today.

The Real Deal reported two days ago that AAK Acquisitions LLC was in contract to buy the 40-unit residential property (with two ground-floor retail units). Attorney William Schneider, who TRD said is representing AAK Acquisitions LLC in the purchase, didn’t immediately respond to a request for comment.

This is the second recent bankruptcy filing for Toledano. In August he sought Chapter 11 protection at 97 Second Avenue between Fifth and Sixth Streets, an East Village walk-up building, as CO reported at the time.

With additional reporting provided by Cathy Cunningham.


Source: commercial

Toys ‘R’ Us Files for Bankruptcy, No Stores Slated to Close (at Least for Now)

Ahead of its Sept. 26 second-quarter earnings call, toy giant Toys “R” Us has voluntarily filed for bankruptcy protection in the Eastern District of Virginia as a means of unburdening itself from massive debt on its balance sheet, $400 million of which comes due next year.

“Together with our investors, our objective is to work with our debtholders and other creditors to restructure the $5 billion of long-term debt on our balance sheet,” Chairman and Chief Executive Officer Dave Brandon said in a statement.

Toys “R” Us, which was purchased by Kohlberg Kravis Roberts, Bain Capital and Vornado Realty Trust for around $6 billion in 2005, said in a letter to its customers that it is “working to strengthen our financial position. The company, some of our U.S. subsidiaries and our Canadian subsidiary proactively and voluntarily filed for Chapter 11 in the U.S. and began parallel reorganization proceedings in Canada. … Through these important actions, we expect to restructure our long-term debt and instead use these resources to reinvest in our business, so that we can continue to improve your experience in our stores and online and separate ourselves from our competitors in today’s rapidly changing retail landscape.”

As of April 29, the company had $6.57 billion in assets and $7.89 billion in liabilities, according to yesterday’s bankruptcy petition, obtained via Nationwide Research Company. Net sales decreased by $113 million, or 4.9 percent, to $2.2 billion for the 13 weeks ended April 29, compared with $2.3 billion for the same period last year, the company’s U.S. Securities and Exchange Commission 10-Q filing indicates.

Steve Jellinek, a vice president at Morningstar Credit Ratings, told Commercial Observer the bankruptcy didn’t come as a great surprise.

“I was expecting it for a couple of reasons,” Jellinek said, “Firstly, Toys ‘R’ Us had a heavy debt load because of its leveraged buyout. Secondly, the state of the retail market; there are just too many retailers—it was only a matter of time.”

He went on to say following the retail industry’s consolidation of bookstores and sporting goods stores, consolidation among toy retailers was bound to follow. “The competition in toys is pretty much the same as the competition in books,” Jellinek said. “You’re dealing with a commodity and the lower-priced retailer is going to win.” Two of those lower-priced retailers bringing the heat are online giant Amazon and Walmart.

As CO reported on Sept. 11, a bankruptcy could place $3.6 billion in commercial mortgage-backed securities loans at risk. The $507.6 million loan securitized in the Goldman SachsBank of America-sponsored TRU 2016-TOYS deal, backed by a portfolio of 123 Toys “R” Us and Babies “R” Us stores, is the CMBS loan with the largest exposure. “The big question everyone is asking is what’s going to happen with the TRU deal, but nobody knows at this point. The positives is strong diversity of geographic locations, conservative underwritten loan to value and a conservative dark value on the whole portfolio—around 82 percent,” Jellinek added.

All of Toys “R” Us’ roughly 1,600 Toys “R” Us and Babies “R” Us stores and e-commerce sites will remain open for business, the company said, due to a commitment of over $3 billion in debtor-possession financing from existing lenders led by J.P. Morgan.

Morningstar expects there to be some store closings eventually, Jellinek said. The stores that will escape the shutterings will be “good locations with high demand, strong populations and most likely high sales per square foot, and you’ll see that in the more densely populated areas,” he said.

Meanwhile, Toys “R” Us is maintaining hope about this year’s holiday season. The company said it has started its “seasonal hiring push,” and as CO previously reported, it recently opened a pop-up shop in Times Square.

One broker spoke of the benefits of the bankruptcy filing.

“I think Toys’ bankruptcy filing is probably a good thing, strategically, for the company,” retail broker Richard Hodos of CBRE said over email. “If they are able to secure the debtor-in-possession financing package, it should give them breathing room and a whole new level of cushion so they can make the strategic investments in the business and operational platform necessary (for the business) in the long run.”

Jellinek concurred that the bankruptcy filling isn’t all doom and gloom. “It could be a good thing if they have some of the debt extinguished so it’s more manageable, and can focus on profitable stores. The question is how are they going to compete going forward, even if they do close stores. Even in Class A locations, will the revenue be strong enough to survive? That’s the question.” 


Source: commercial

Raphael Toledano Seeks Chapter 11 Protection for ‘Commandeered’ EV Property


Source: commercial