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Owner of Flagship Seattle Office Building Wins Loan Modification After Six Months

September 20, 2010

As Irvine commercial real estate loan modification attorneys, we were interested to see a recent article detailing a modification to a commercial loan for a major office building in Seattle. As the Seattle Times reported Sept. 15, Beacon Capital Partners, owner of the Columbia Center in downtown Seattle, has succeeded in winning an extension to its loan after six months of negotiations. The negotiations were complex in part because they were not with one lender, but with several representatives for bondholders with an interest in the property, which is part of a commercial mortgage-backed security. Before the loan modification, the 76-story property reportedly had the largest delinquent CMBS loan. Beacon is the largest investor in Seattle commercial buildings, and the article notes that it is in negotiations to modify other loans as well.

Beacon bought the Columbia Center in 2007, at the height of the CRE boom, and financed the purchase with a $480 million loan. The lender, Morgan Stanley, put $380 million of that loan into a mortgage-backed security; another $100 million was sold to private investors. Like many other owners of CRE, however, Beacon has found that it now cannot generate enough income from the property to make its payments. Almost 40 percent of the building is vacant, the article said, in part because Amazon recently moved employees out of the 177,000 square feet it had leased. Beacon stopped making loan payments in March. To avoid a foreclosure, the bondholders and Beacon agreed to extend the loan by three years, reducing its monthly payments by 38 percent. It also has two one-year extension options that, if exercised, would mean the loan would be due in 2017. A real estate analyst told the paper that neither Beacon nor its lenders really wanted a foreclosure.

Our San Diego commercial real estate loan modification lawyers do not doubt it. In fact, we are surprised not to see more articles about similar loan extensions. Foreclosure is never good for the lenders, but it's particularly bad right now because the properties are unlikely to fetch high prices in the current market. With many troubled loans coming out of the boom years of 2005-2008, this almost certainly means taking a loss. And of course, commercial borrowers prefer not to lose their own investments in their buildings. The practice of extending loans has been derisively called "extend and pretend," with the implication that lenders are pretending the borrower will be able to meet its obligations later. We do not believe this is such a far-fetched idea; after all, real estate is believed to be cyclical. In the short term, commercial real estate is suffering in proportion to the rest of the economy, but as the economy rebounds, a long-term or mid-term loan extension could allow lenders to keep collecting payments and make a profit on those loans.

Howard Law PC helps commercial borrowers advance that point of view to lenders that have shown reluctance to consider a loan modification. Because of the recession, many lenders have tightened their lending standards far beyond what they were during the CRE "bubble," and one unfortunate side effect is that borrowers are not always judged eligible for a loan workout, even though they were eligible for the original loan. And of course, with many commercial buildings well underwater because of the drop in real estate prices, refinancing is not an option. In the meantime, rents have plummeted and many buildings are frequently empty, hurting revenue. Our Moreno Valley commercial real estate loan modification attorneys help clients make the case that this won't be forever and that they can meet their obligations with an extension or another change to the structure of the loan.

If you're stuck in a situation like that of the Columbia Center and you're not having any luck negotiating on your own, you should call Howard Law to learn more about our services. For a free consultation, call us today at 1-800-872-5925 or send us a message through our website.