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December 22, 2008
Developers Ask U.S. for Bailout as Massive Debt Looms
The Wall Street Journal
by LingLing Wei and Jon Hilsenrath
What took them so long? Used to printing money and responsible in large part for the global credit crisis, the real estate industry now wants the taxpayers to bail them out. You can bet that Atlantic Yards developer Forest City Enterprises will be near the head of the soup line.
With a record amount of commercial real-estate debt coming due, some of the country's biggest property developers have become the latest to go hat-in-hand to the government for assistance.
They're warning policymakers that thousands of office complexes, hotels, shopping centers and other commercial buildings are headed into defaults, foreclosures and bankruptcies. The reason: according to research firm Foresight Analytics LCC, $530 billion of commercial mortgages will be coming due for refinancing in the next three years -- with about $160 billion maturing in the next year. Credit, meanwhile, is practically nonexistent and cash flows from commercial property are siphoning off.
Unlike home loans, which borrowers repay after a set period of time, commercial mortgages usually are underwritten for five, seven or 10 years with big payments due at the end. At that point, they typically need to be refinanced. A borrower's inability to refinance could force it to give up the property to the lender.
...Real-estate owners are pressing the government to take preemptive action before thousands of properties begin to fail. Among those who have been active in the lobbying effort: William Rudin, whose family is a large Manhattan office-building owner, Stephen Ross, chief executive of The Related Cos., a major U.S. developer, and Steven Roth, chief executive of office and retail landlord Vornado Realty Trust.
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NoLandGrab: Forest City Enterprises has a $177 million AY-related debt obligation to Gramercy Capital coming due in early February, and you can bet they don't have the cash to pay it off.
Posted by eric at December 22, 2008 10:31 AM