Gramercy May Lose About 900 Properties on Unpaid Loans
(Corrects number of properties subject to foreclosure in headline, first and sixth paragraphs of story published May 9.)
Gramercy Capital Corp., a New York- based real estate investment trust, said lenders may seek to seize about 900 properties after it failed to pay off $790 million in loans.
The lenders -- Goldman Sachs Mortgage Co., Citicorp North America Inc., SL Green Realty Corp. (SLG) and KBS Debt Holdings LLC -- “may immediately seek to exercise available remedies, which will likely include attempting to foreclose on all or substantially all the collateral,” Gramercy said today in a statement.
Lenders that offered to extend troubled real estate debt after the 2008 financial crisis have turned increasingly to liquidating loans and selling the underlying assets, according to Real Capital Analytics Inc. In the first quarter, 57 percent of workouts were permanently resolved, mostly through liquidations or sales, up from 49 percent a year earlier, the New York-based property-data company reported April 18.
“Lenders are shifting relatively quickly from the ‘extend and pretend’ mentality to taking action and getting control of the assets,” John Guinee, an analyst who follows office and industrial real estate investment trusts at Stifel Nicolas & Co., said in a telephone interview from Baltimore.
Gramercy, which invests in loans secured by commercial and multifamily properties, delayed the release of its annual report as it sought to modify or refinance the loans, originally due in March 2010. The loans are secured by mortgages on properties held by the company’s Gramercy Realty division, according to Gramercy Capital’s third-quarter earnings report.
Mezzanine Loans
The portfolio consists of a $240.5 million mortgage and $549.7 million in senior and junior mezzanine loans, according to today’s statement. Mezzanine loans, used to bridge the difference between the senior mortgage and the owner’s equity, carry higher interest rates and give the holder the ability to foreclose on the property.
The Goldman mortgage and mezzanine debts were in connection with Gramercy’s $3.1 billion acquisition of American Financial Realty Trust in April 2008, Gramercy Chief Financial Officer Jon Clark said in an e-mail today. American Financial Realty, founded by Lewis Ranieri, invested mostly in bank branches and office buildings. Gramercy Realty has interests in about 900 properties, including 195 in a mortgage originated by Goldman, Clark said.
‘Substantial Book Loss’
A loss of the portfolio “would trigger a substantial book loss and would likely result in the company having negative book value,” according to Gramercy Capital’s earnings report.
Gramercy Capital was previously a financing unit of and run by executives from SL Green. Gramercy in 2009 acquired its management company, which was an SL Green unit, and hired its own executives, including Chief Executive Officer Roger Cozzi. SL Green remains its largest shareholder, according to data compiled by Bloomberg.
Gramercy was formed in 2004 “to assume, and then expand to a national scale, SL Green’s structured finance lending business,” according to Gramercy’s website. Both SL Green CEO Marc Holliday and President Andrew Mathias previously worked for Capital Trust Inc., a REIT that specializes in underwriting, structuring and managing real estate debt.
“They thought the investment opportunities were so big it warranted its own company,” said Michael Knott, an analyst at Newport Beach, California-based Green Street Advisors Inc. “At first it was a blissful marriage, through 2004, ‘05 and even into ‘06, then it did get a bit dicey. Eventually Green and Gramercy agreed to go their own ways.”
SL Green Acquisition
SL Green, Manhattan’s largest office landlord, agreed in December to buy real estate investments from Gramercy for $390.8 million, including the right to a 100 percent leasehold on the Lipstick Building at 885 Third Ave., 2 Herald Square and 292 Madison Ave. The proceeds from that deal are separate from Gramercy Realty, Clark said in an e-mail today.
Gramercy Capital fell 36 cents, or 13 percent, to $2.34 as of 4:15 p.m. in New York Stock Exchange composite trading.
To contact the reporters on this story: John Gittelsohn in New York at johngitt@bloomberg.net; David M. Levitt in New York at dlevitt@bloomberg.net
To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net
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