Comments (54) | Add a comment
World Market Center defaults on two loans totaling $564.7 million
-
DUANE PROKOP/LAS VEGAS REVIEW-JOURNAL
A view of the World Market Center at 495 S. Grand Central Parkway on Monday. The World Market Center has reportedly defaulted on the mortgages covering two of its three towers. » Buy this photo
Tools
LAS VEGAS BUSINESS PRESS
Updated: Sep. 15, 2010 | 8:50 a.m.
Plagued by declining occupancy and lower rents from tenants who stay, the World Market Center has defaulted on the mortgages covering two of its three massive towers.
A year ago, World Market Center informed the servicing agents for the two loans, totaling $564.7 million, that its declining cash flow would force it to skip payments within months. The default occurred in April, although it was only recently disclosed by outside companies that track commercial loan defaults.
In a July newsletter, credit rating agency Moody's Investors Service listed the two buildings, A and B, as being in foreclosure proceedings. But in a report last month, research service Realpoint said that lenders had extended a forbearance agreement, through which they voluntarily held off on any repossession actions, through Aug. 31.
In a statement Tuesday, World Market Center management denied foreclosure proceedings were under way.
"Certain parties have been misrepresenting this fact for months despite our notice to them," the statement said.
Building C, the other component of the World Market Center, opened in July 2008, after the recession had set in and financial markets had largely dried up. As a result, World Market Center could not find a long-term mortgage to replace the $488 million construction loan secured in December 2006.
Typically, construction loans come due in full after five years. But World Market Center declined to comment on the loan or other aspects of its financial condition.
A Realpoint report said that several debt-restructuring proposals had been traded between World Market Center, controlled by developer Jack Kashani and the New York-based Related Cos., and the agent representing the lenders but no deals had been reached.
Over the past couple of years, distressed real estate has become common in Las Vegas in both the residential and commercial sectors. At $2.9 billion, the valley has the nation's second-highest value of delinquencies after New York for loans included in financing vehicles called commercial mortgage-backed securities, according to a Realpoint tally.
But problems for the World Market Center would be a particularly sharp sting because community leaders often held it up as an example of the economic diversification the valley's economy badly needs.
The three towers cover just more than 5 million square feet and house several hundred showrooms for home furnishings manufacturers and wholesalers. While dark much of the year, the World Market Center draws tens of thousands of buyers to its semiannual shows.
"The World Market Center takes something that used to be temporary and makes it more permanent," said Rob Lang, the director of Brookings Institution Mountain West center at University of Nevada, Las Vegas. The long-term hope, he added, is that furniture designers will cluster around the center and create products that can be exported, much as happened in Milan, Italy.
Instead, the recession that hammered the furnishings industry struck the World Market Center. According to Realpoint, the occupancy level at Building A dropped from 97 percent at the end of 2007 to 85 percent in June 2009, while Building B went from 89 percent to 75 percent during the same span. More recent figures were not available.
At the retail level, furniture sales have dropped 12 percent from the 2007 peak to $85.8 billion last year, according to the calculation of the investment firm Mann, Armistead & Epperson. At the wholesale level, however, the decline ran 28 percent to $34 billion during the same period.
In February, World Market Center told lenders that tenant delinquencies and rent concessions had made it impossible to continue covering debt service. In an August interview, World Market Center CEO Robert Maricich said management had been "aggressive" in discounting lease renewals on Building A as "reflect(ing) the difficulty in the economy."
World Market Center has regularly touted new or extended leases it has signed, and it has tried to extend its base through steps such as adding a gifts section as part of its regular August market.
World Market Center's future could hinge on a relatively obscure provision that defines whether the mortgages are recourse or nonrecourse. A recourse loan lets lenders recoup the difference between the balance of the loan and the value of the property at the time of repossession by pursuing other assets held by the owners.
Realpoint has calculated that Building A is worth only $186.6 million compared with a loan balance of $213.8 million. Including other costs, Realpoint projected a potential loss of $32.9 million.
With Building B, Realpoint estimated a possible loss of $106.9 million on a $345 million mortgage.
However, a nonrecourse loan limits any recovery by lenders to the property itself and allows owners to walk away without further losses. Nonrecourse financing is common with commercial mortgage-backed securities, in which numerous real estate loans are pooled into one fund and then sold to investors. The funds that include the World Market Center loans were put together by the now-defunct brokerage Bear Stearns in 2005 and 2007.
For example, Vornado Realty Trust had nonrecourse loans on furniture marts it owned in High Point, N.C., and turned buildings over to lenders after defaults.
Also, further doubt would be cast on already-delayed plans to expand the market center to its planned eight buildings and 12 million square feet over 57 acres.
The lenders are represented by Centerline Capital Group, a company that tries to restructure loans that have soured. In November and January, according to Realpoint and Fitch, World Market Center submitted two proposals that were rejected by the lenders. The lenders then sent World Market Center their own offer, which is still under review.
Contact reporter Tim O'Reiley at toreiley@lvbusinesspress.com or 702-387-5290.
Comments
Terms & Conditions
The following comments are provided by readers and are the sole responsiblity of the authors. The Review-Journal does not review comments before publication nor guarantee their accuracy. By publishing a comment here you agree to abide by the comment policy. If you see a comment that violates the policy, please use the Report Abuse button.
Some comments may not display immediately due to an automatic filter. These comments will be reviewed within 24 hours. Please do not submit a comment more than once.
Note: Comments made by reporters and editors of the Las Vegas Review-Journal are presented with a yellow background.
RSS
Twitter
Facebook
I foresee 25% unemployment by September 2011.
No job growth, continued declining tourism.
Don't fret with 113 weeks of unemployment benefits that Las Vegans can collect, we will all be fine.
Your next step is file your personal bankruptcy, fully justified under the current economic conditions.
As an emotional reward to yourself, I would go out and buy yourself an XboX 360 hook that puppy up to your 55inch LCD-LED TV and ride out this disaster in the comfort of your own living room.
"World Market Center's future could hinge on...?"
Who continues to believe anything about a future run by the people in charge now? There is no economy. No one will buy anything.
A report on MSNBC stated that 89% of ALL homes in America that are currently in "Adjustable Rate Mortgage" Better known as a "Arm" currently owe more on their home loans than what they are worth !Banks will still foreclose on these homes because the mortgages are insured by "PMI Insurance".Meaning that the banks will collect what they homes were originally worth when the mortgages were originated.What does this mean,the banks will play their Foreclosure game and will make "BIG MONEY" off the mortgage insurance and then still sell the house and make even more money.GOD HELP US !!!. Still,What the he!! I say to the homeowners.Dump these homes you obviously can't afford.When they're resold you can buy them back for nothing compared to what they originally sold for.This will all work out,but it's gonna take probably another 5 years.HEY CONSTRUCTION WORKERS ! Change your career.The glory days are gone !!!Cheap labor the rest of the way in construction.Taco Bell construction companies !!!!
Smokey im with you. Cant we just hire 30,000 more firefighters at $200k a year? That way reponse times go down.. and all the gyms, grocery stores, custome truck shops, motorcycle dealers, RV Dealers, and girls on craigs list will flourish. Our economy would bounce back in a heartbeat. Heck those 200K a year salaries are just government money that grows on trees anyway.
"another fine mess you've gotten us into (insert name)."
I know this is basically a wholeseller business, but even I understand the situation. Las Vegas is a good example. The area was booming. Developers were going where no developers had gone before. New homes were being sold. Many went to people who weren't qualified by any practical standards. They bought a lot of furniture. The Reid/Barney/Dodd/Pelosy show just kept rolling along. Suddenly the whole mess collapsed. Yeah, yeah, it happened during the Bush term so it was all his fault. All you lib-loons are right on the time frame. You ignore the fact that the quartet above were in control of congress for two years before the Bush term ran out. Back on point. Las Vegas/Clark County has 14.8% unemployment and the highest forclosure rate in the country and we haven't even hit bottom yet. People have lost their homes, which usually means they also lost their furniture. Now they are scrounging for those big cardboard boxes furniture comes in. Smaller versions of this situation are happening all over the country. If you think it's bad now, just wait until Jan 2011. The demorats may lose congress, but they have planted land mines all over the landscape.
Rory for Governor.....Oscar for Lt Gov. Harry you saved City Center. How about some more of that magic?
MAKE THE PLACE A NEW FIREHOUSE SO THE CITY CAN HIRE MORE $200,000 PLUS FIREMAN.I.M ALL FOR IT.
Furnitureopolis?
Neonopolis