Sunday, December 6, 2009

Is Bernanke About to Become a Zombie Landlord?

This is the last thing Fed chairman Bernanke wanted to hear.

The largest real estate deal in Chicago history is turning into a zombie deal.

A venture led by New York-based Tishman Speyer Properties has defaulted on part of a package of loans used to finance the $1.72-billion purchase of six prime office towers in Chicago's Loop during the Fed-induced real estate market boom of 2007, sources familiar with the deal say, reports Crain's New York.

The buildings, including such Chicago-Loop landmarks as the Civic Opera Building and the 10 & 30 S. Wacker Drive complex, have lost much of their value amid the broad decline in the commercial real estate market. The portfolio also includes 161 N. Clark St., 30 N. LaSalle St. and 1 N. Franklin St.

But, here's the real kicker. The Federal Reserve is the the main lender via its Maiden Lane I program, when it gifted Bear Stearns to JP Morgan. Is it any surprise that "Obama's fvaorite banker" Jamie Dimon, who lived in Chicago when he first started running BankOne, didn't want these mortgages as part of his gift and Bernanke was kind enough to absorb them at the Fed?

So what is the Fed holding? Here's Crain's again:

“Virtually all the assets bought between '05 and '07 cannot be refinanced today without a significant capital infusion,” says Shawn Mobley, executive vice-president at real estate firm Grubb & Ellis Co. “These buildings need to be recapitalized to get back in the business of being active real estate.”

Without a financial restructuring, the properties are likely to join a new trend—“zombie buildings,” which can't compete for new tenants because they lack the money to cover brokers' commissions and interior office reconstruction.

The number of zombie buildings in the Chicago area is likely to grow in 2010, according to a forecast by California-based Grubb & Ellis....Avoiding a Night of the Living Dead scenario could be tough even for an established firm like Tishman Speyer, whose Chicago portfolio totals 12.2 million square feet.
Tishman according to Crain's is taking a tough negotiating stance against the Fed. ZeroHedge gets to the bottom of what that is all about:
What is most curious about the development is not merely the Fed's involvement but how it has responded to TBTF negotiation attempts by Tishman Speyer, which seems to believe that since the Fed will bail anyone and anything out, why not also Tishman? Come to think of it, any rational business would have done the same. And look for many more companies to approach the Fed with full bailout intentions in the future: it is now too late to pretend that Bernanke would consider letting someone, especially someone embedded in CRE, fail.

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