Ordinary People, Extraordinary Risks
A year of bad news in the housing market has the industry sounding a lot pricklier. In this week's issue of Watch List, D.R. Horton Inc.'s CEO Donald J. Tomnitz said conditions "suck." We also give you the latest facility closures and properties on the watch list in: Southfield and Troy, MI; San Antonio and El Paso, TX; Kokomo and Lafayette, IN; Moorestown, NJ; Waveland, MS; Tallahassee, FL; Chicago; Fort Atkinson, WI; and Cody, WY.
Blunt Talk
As new worries about rising defaults and delinquencies in the mortgage industry pile on top of the housing market downturn, industry assessments are becoming less sugarcoated.
D.R. Horton Inc.'s CEO Donald J. Tomnitz said what most others in the housing industry have been cautious not too when he said last week that 2007 "is going to suck, all 12 months of the calendar year."
His blunt assessment contrasted with much of the spin that has been coming from lenders, realtors, trade groups, homebuilders and others in recent months. There haven't been many straight shooters discussing the housing and mortgage market collapse.
In his presentation to an investor conference, Tomnitz said new home prices will continue to decline this year as builders try to sell the glut of houses currently available. His firm is unlikely to get more pricing power until 2008, he said.
Horton, the nation's largest homebuilder by the number of homes sold, is currently building 26,000 houses, down 35 percent from its peak of 40,000. Tomnitz said that further cuts are coming.
The real problem Keitaro Matsuda, senior economist of Union Bank of California in San Francisco said last week is the lack of affordability.
"Most people would agree that falling mortgage rates between 2000 and 2003 created a feeding frenzy in the market," Matsuda wrote this month in his annual housing assessment. "But the frenzied market condition came about because so many people were previously excluded from owning homes in the face of already high prices. When lower mortgage rates cracked open the door to homeownership, everyone rushed in. Conversely, when mortgage rates rose last summer, buyers retreated and price appreciation halted."
"Those new buyers took advantage of recent innovations in mortgage products, including interest-only loans, fixed-adjustable rate hybrids with low initial rates, and optional-payment adjustable rate mortgages (option ARMs), not to mention the whole new genre of subprime lending. The end result was that ordinary Californians took extraordinary risks, not because they were reckless, but because that was the only way for them to participate in the housing market," Matsuda wrote.
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Friendly Puts Ice Cream Shops Up for Sale
Friendly Ice Cream Corp. has retained Goldman Sachs & Co., as financial advisor, and Weil, Gotshal & Manges LLP, as legal advisor, to assist it in exploring strategic alternatives, including a possible sale of the company. Friendly Ice Cream operates 514 company and franchised restaurants throughout the Northeast.
La-Z-Boy Consolidating Plants
La-Z-Boy Inc. plans to close its Lincolnton, NC, and Iuka, MS, upholstery manufacturing facilities, the closure of its rough mill lumber operation in North Wilkesboro, NC, the consolidation of three operations into one at Kincaid's Taylorsville, NC, upholstery operation and the elimination of a number of positions throughout the remainder of the organization.
The company's Lincolnton facility employs 250 people, accounts for approximately 5% of the La-Z-Boy branded business total upholstery manufacturing capacity and produces high-leg recliners and occasional chairs. La-Z-Boy will cease operations at the Lincolnton plant in July 2007, with production shifting to the company's Newton, MS; Siloam Springs, AR; and Dayton, TN facilities.
The Iuka facility produces sofas, love seats and upholstered chairs for the company's Bauhaus division and has about 150 employees. The Iuka facility is scheduled to close in early May 2007 and its production will move to Bauhaus's Saltillo and Sherman facilities in Mississippi.
The consolidation of the company's North Wilkesboro rough mill lumber operation into its Hudson, NC, facility and the consolidation of the Taylorsville facilities, combined with the change in La- Z-Boy's corporate structure, will eliminate approximately 100 positions.
The Lincolnton facility, which is approximately 370,000 square feet, and the two facilities at Taylorsville, will be idled after operations cease and will be marketed for sale along with the equipment at the North Wilkesboro rough mill operation. The North Wilkesboro casegoods plant will continue to produce bedroom furniture with approximately 300 employees. The Iuka property is a leased facility.
More Facility Closures
Bassett Furniture Industries, Inc. plans to cease operations at its wood manufacturing facility in Bassett, VA. The closure of the 323,000-square-foot facility on Fairystone Park Highway is planned to begin over the next 60 to 90 days and affect approximately 280 employees or 15 percent of the company’s workforce. The company plans to source the majority of the products currently produced at this facility from overseas suppliers, to continue to produce certain custom bedroom products domestically and to discontinue providing certain slower selling items. The company will continue to operate two domestic manufacturing facilities.
On April 23, Greenfield Research Inc. will begin a permanent mass layoff at its 347 Edgewood Ave. facility in Greenfield. OH. This mass layoff is a result of the loss of business with Johnson Controls Inc. The layoff is expected to be completed by Aug. 31 and affect a total of about 100 employees.
Dillard's, Inc. and The Higbee Co. are closing the Dillard's store at the Midway Mall at 4000 Midway Mall in Elyria, OH, between May 5 and May 18, affecting about 96 employees.
A following upcoming plant, store and office mass lay offs were reported last month in Arizona.
· Wells Fargo Home Mortgage plans to layoff 191 employees at 1150 W. Washington St. in Tempe on April 30.
· USF Bestway Inc. plans to layoff 52 employees at 17200 N. Perimeter Drive, Suite 200, in Scottsdale now through Oct. 31.
· Motorola Mobile Devices plans to layoff 46 employees at 2900 S. Diablo Way in Tempe on May 11.
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North Park Plaza, Southfield, MI
Special Servicer: LNR Partners
The loan on this 295,356-square-foot office building at 17117 W. Nine Mile Road is in monetary default due to loss of major tenant in December 2006. The loan transferred to special servicing in January 2007. LNR has initiated foreclosure proceedings on this property.
Collins & Aikman HQs, Troy, MI
Special Servicer: LNR Partners
The borrower on this 60,000-square-foot office property at 5755 New King Court requested relief based on the fact that it has been paying 100% of the loan payments and operating expenses for well over two years, with no tenant other than the its own corporate office and wanted to begin discussions on a restructure of the loan. Borrower reported they were negotiating a lease that would re-tenant the property to approximately 82%, but would need debt relief to do so. The borrower's proposal was deemed unacceptable and LNR is initiating foreclosure.
1509 Glen Ave., Moorestown, NJ
Special Servicer: Capmark Finance
The property manager, GVA Smith Mack, reported that this 77,700-square-foot office building had negative monthly NOI for December 2006 due to higher than budgeted utility bills. The listing broker, CBRE, has been actively marketing the property for sale. A business plan was written and approved to reduce the listing price from $3.995 million to $3.495 million. A contract with the prospective buyer was expected to be executed early this year.
170-180 W. Westfield Ave., Roselle Park, NJ
Special Servicer: LNR Partners
The loan on this 78,000-square-foot industrial property is now current on principal and interest. There are still shortages in the escrow accounts. Negotiations are in process. There are no collateral issues.
Doral Club and Sutton House Apartments, San Antonio, TX
Moody's Investors Service has downgraded the bonds backing Doral Club, a 297-unit complex built in 1985 composed of 11, three-story buildings in the northwest section of San Antonio and Sutton House Apartments, a 265-unit garden style complex built in 1985, comprised of 18 three-story buildings in the north central section of San Antonio. The rating downgrades are reflective of debt service coverage level that are not consistent with Moody's benchmarking standards and the expectation that supply in the pipeline will erode occupancy further in the near term.
Oak Park Apartments, Waveland, MS
Special Servicer: LNR Partners
LNR is still awaiting release of insurance funds on this hurricane-damaged 136-unit apartment complex at 2009 Waveland Ave. Once funds are released and put into the existing escrow account, LNR will then negotiate with the borrower on getting the loan paid off.
La Plaza Apartments, El Paso, TX
Moody's Investors Service downgraded the rating on some of the bonds used to finance this 129-unit complex. The rating downgrade primarily reflects Moody's concern about the volatility in the affordable housing sector and a revision to the rating approach for this sector, including growing expenses charged to reserve and replacement balances that may become recurring expenses, thereby reducing net operating income. In addition, Moody's noted that potential market competition is arising from increased multifamily building.
Landmark Apartments, Tallahassee, FL
Special Servicer: Midland Loan Services
Midland Loan Services has been working with borrower to bring the loan current on this 128-unit apartment complex at 2125 Jackson Bluff Road. The borrower has indicated that an increase in taxes and insurance have made the loan subperform. The borrower would like to reallocate escrows to cover shortfalls in these two categories. Midland has indicated payments must be brought current prior to discussing any forbearance agreements, or reallocation of escrows. The borrower noted that it is looking at ways to bring payments current, and may look for a buyer to assume the loan obligations. Property is in good to average condition. Improvements are older, but decently maintained.
Meadow Lawn Apartments, Kokomo, IN
Special Servicer: LNR Partners
A sale closing and loan payoff on this 122-unit apartment complex at 1930 South Goyer Road has been delayed due to a drainage pipe issue at the property.
Bethany Rose Apartments, Lafayette, IN
Special Servicer: LNR Partners
The borrower on this 45-unit apartment complex at 3545 McCarty Lane owes penalty items and tax advance. Foreclosure is underway. A summary judgment hearing is scheduled for March 12.
10212-14 South Martin Luther King Drive, Chicago, IL
Special Servicer: LNR Partners
The borrower has made several partial payments since the loan on this 12-unit complex went into special servicing and loan is current on principal and interest. Outside counsel has been retained for possible foreclosure.
1338 N. LaSalle St., Chicago, IL
Special Servicer: LNR Partners
A matured second mortgage loan on this seven-unit apartment complex was paid off in full. First mortgage is current and LNR is discussing payment of default due with borrower.
Hotels, Fort Atkinson, WI; Cody, WY
Special Servicer: CW Capital Asset Management
This loan is secured by a 60-room Best Western-Courtyard Inn in Fort Atkinson, and is 90-plus-days delinquent. A receiver is in place and foreclosure is expected to be filed shortly.
A 52-room Days Inn hotel in Cody also secures this loan. CW Capital began the foreclosure process after the court dismissed the borrower's case for bankruptcy.
Compiled by CoStar Group from the following sources: Fitch Ratings, Standard & Poor's, Moody's Investors Service, CoStar Property Professional, Securities & Exchange Commission CMBS filings; CMBS bondholder reports, Worker Adjustment and Retraining Notifications and corporate news releases. Written by Mark Heschmeyer
Watch List (March 11-17):
Thursday, March 15, 2007
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