The Real Deal Miami

Maturing loans on shaky ground

Some CMBS loans that are coming due soon are worrying investors
By Matthew Egan | October 05, 2016 11:00AM
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The Design Center of the Americas in Dania Beach

Just beneath the surface of Miami’s strong commercial real estate market, a cluster of troubled pre-financial crisis loans imperiled by shaky shopping centers and half-empty office parks is coming due. To complicate matters, some of these loans were packaged into commercial mortgage-backed securities by now-notorious investment banks that no longer exist — such as Lehman Brothers and Bear Stearns.

Several of these commercial properties in the greater Miami region are showing signs of financial stress, according to CMBS data compiled for The Real Deal by New York real estate research firm Trepp.

Take, for example, the sprawling 800,000-square-foot Design Center of the Americas in Dania Beach. It was formerly known primarily as a showroom for the fashion and interior design industries, but many of the spaces once occupied by the creators of custom cabinets and fancy light fixtures sit vacant today.

Cohen Brothers Realty, a real estate firm controlled by billionaire Charles S. Cohen, has owned the property since 2005. The CMBS loans backing the Design Center of the Americas went into special servicing in 2012 due to an “imminent nonmonetary default,” according to Trepp, which typically indicates that one or more of the conditions of a commercial loan have been broken. As of July, the property is behind on its debt payments to the tune of $175 million, Trepp reports, but it has been granted a grace period. The loan will be coming due in August 2017.

The owner has repositioned the Design Center as a general-purpose office building, and there are signs that this is helping to attract new tenants and raise cash flows. “We are getting towards full occupancy. We are rounding third and heading home,” said David Fogel, senior vice president of Cohen Brothers Realty. He declined to elaborate on the imminent nonmonetary default and grace period, but said the company won’t let the property fail.

“We’re highly optimistic that this will ultimately be a very, very successful asset,” he said. “We have never lost any properties. We pay our obligations when they’re due. We’re upstanding citizens in the real estate market.”

Ken Krasnow, an executive managing director for the South Florida region at Colliers International, agreed that the situation at the Design Center has stabilized. He added that other office buildings in the region are still grappling with financial problems. “The office market in Miami was the last piece to recover,” Krasnow said. He said there was a lot of speculative office building in the greater Miami region before the financial crisis, but “you are not seeing any speculative office construction today.”

A loan issued late in the last cycle is also coming due for the CitiCentre Office Building in North Miami Beach, located at 290 Northwest 165th Street, which had an occupancy rate of 68 percent at the end of 2015. Although the building is home to professional tenants such as a laser-vision eye surgeon and a law firm, revenues have been slumping. The property generated $719,000 in revenue in 2015, down from nearly $1 million in 2011, according to Trepp data. As of March, 2016, the property was generating 59 cents of cash flow for every dollar owed on its loan, according to Trepp.

CitiCentre was built in 1986 and renovated in 1998. The CMBS loan was taken out in 2007 to refinance the property and will be maturing in mid-2017. Attempts to reach Alden Property, the owner of record, were unsuccessful.

Some retail properties are also distressed. The Shoppes at Dadeland, located at 7200-7260 Southwest 88th Street in Miami, is on Trepp’s watch list because of high expenses and burdensome debt obligations, although it is fully leased up with tenants such as Old Navy and the Container Store. The sponsors, listed as Stephen P. Hayman and Alan J. Hayman, did not respond to a request for comment.

The Gallery at Beach Place, located at 17 South Fort Lauderdale Beach Boulevard, serves as the entrance to Marriott’s BeachPlace Towers, a 19-story luxury hotel. The open-air retail property was built in 1997 and received $40 million in refinancing through a CMBS loan originated by Lehman Brothers in August 2006. As of this past March, the occupancy rate had slumped to 62 percent, down from 94 percent the year before.

The clock is ticking for this property. The CMBS loan was set to mature in mid-September but is in the process of being refinanced, according to Trepp. Thor Equities, which lists the Gallery at Beach Place in its portfolio of properties, didn’t respond to requests for comment.