02/24/2010

Empire Faces Cash Squeeze on Apartments

Ezra Beyman's Empire Assets Group is under pressure from lenders on 14 of its apartment properties.

Some $485 million of securitized mortgages on the complexes are in special servicing or on servicer watch lists. Among the latest additions: A $63 million mortgage on the 374-unit Empirian Chesapeake in Chesapeake, Va., that was transferred to special servicing on Jan. 11.

The 14 properties, most in the Southeast, are suffering from declining rents and occupancy rates. So far, it doesn't appear that Empire or special servicers are shopping any of the properties. A spokesman said Empire is in discussions with servicers to address the loan issues and expects "no adverse outcome." But should the Montvale, N.J., firm be unable to renegotiate the loan terms or pump in equity, some or all of the properties could be headed to market.

The properties, mostly Class-B, garden-style complexes, encompass 5,134 units. They make up about 10% of the 40,000-plus units in Empire's portfolio. A big chunk of the company's holdings - 289 properties with 26,932 units - was acquired for $1.1 billion in 2006 from Equity Residential Properties of Chicago. Empire refinanced debt on most of that portfolio in 2007 with three securitized loans totaling $1.05 billion. Those loans haven't been flagged by servicers.

Empire is more than 90 days overdue on loan payments for the Chesapeake complex, which the company bought in 2006 for $78.8 million. The property's cashflow has shrunk below the amount needed to service the debt, resulting in the loan's transfer to special servicer LNR Partners.

Empire is also facing a cash squeeze on a 609-unit Atlanta complex called Empirian at Northridge. Average rents fell to $605 from $776, according to the most recent data in a servicer report. By last summer, the occupancy rate had fallen to 78%. The decline in performance drove down the property's cashflow to just 40% of debt service. Special servicer Midland Loan Services noted that the property's value is now below the $43.2 million loan balance. Midland this month reported that a proposal by Empire to modify the loan's terms was "unacceptable." Midland said it would move to put the property in the hands of a receiver if Empire didn't pump in more equity immediately.

The other Empire properties under pressure are:

*Empirian Luxury Towers (592 units) in Philadelphia. The $50 million loan was put into special servicing in August after income dipped below the amount needed to service payments.

*Empirian on Central (414 units) in Phoenix. The $39.5 loan was transferred to special servicing last month after Empire requested loan modifications. Empire was three months behind on payments, according to a servicer report.

*Empirian Park Row (390 units) in Houston. The $38.6 million loan was put on a watch list after occupancy and rents fell.

*Empirian at Steele Park (400 units) in Phoenix. The $38.5 million loan went into special servicing after Empire missed loan payments in November and December.

*Empirian Highland (309 units) in Charlotte. The $32.9 million loan was put on a watch list in August when cashflow fell below the prescribed level.

*Empirian at Waterford Place (320 units) in Memphis. The $30.3 million loan was put on a watch list in November when Empire reported a decline in rents and occupancy.

*Empirian at Southwind (306 units) in Memphis. The $28.1 million was transferred to special servicing last month. The cashflow has fallen below the amount needed to service the debt.

*Empirian Waterford Landing (260 units) in McDonough, Ga. The $25.8 million loan has been on a watch list since Empire told its servicer in August that it could no longer cover loan payments and expenses.

*Empirian Inverness (208 units) in Tuscaloosa, Ala. The $25 million loan was put on a servicer watch list after its cashflow fell below the amount needed for debt service and the December and January payments were late.

*Empirian Wildewood (240 units) in Columbia, S.C. The $24.5 million loan went on a watch list in January when Empire requested a loan modification to address operating income shortfalls.

*Empirian at Winter Oaks (460 units) in Winterhaven, Fla. The $23 million loan was transferred to special servicing in September. Empire has requested a loan modification.

*Empirian Colonnade (252 units) in Germantown, Tenn. In November, Midland sent Empire a notice of default on the $22.1 million loan after cashflow slipped below the prescribed level.

Empire, which was formed in 1983 by Beyman, was an aggressive buyer as the real estate market was peaking. Its purchase of the Equity Residential portfolio, which was previously owned by Lexford Properties, made it one of the nation's larger apartment owners. Empire talked of buying almost $3 billion of properties in 2008, but ended up striking two deals totaling $322 million. In December, Empire filed with the SEC to raise up to $1.1 billion for a "blind pool" REIT that would acquire core and value-added apartment properties, possibly including some of Empire's current holdings. The stock offering would be underwritten by an Empire affiliate.

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