CMSA Response to GGP Court Ruling
Last week the judge in the General Growth Properties ("GGP") bankruptcy case ruled that GGP would be allowed access to funds from its many SPE subsidiaries to fund ongoing operations in connection with requested $400 million DIP financing. According to an announcement on GGP's website, the DIP financing will be used to "refinance certain pre-prepetition secured indebtedness and provide additional liquidity" to GGP and the other debtors in the bankruptcy. The Commercial Mortgage Securities Association ("CMSA") originally opposed GGP's requested access to the SPE funds, filing a joint amicus brief with the Mortgage Bankers Association in which the industry organizations characterized the GGP request (to use cash collateral from the 169 mall-owning SPEs to fund GGP operations) as potentially "disastrous to the world of real estate finance," because it undermines the separateness of the entities that is the "structural underpinning for non-recourse asset specific financing."
In a statement following the judge's ruling, CMSA gave cautious and qualified approval of the ruling, saying that it "recognizes the integrity of the special purpose entity structure," but reiterating concerns about the appropriateness of including the SPEs in the bankruptcy to begin with. CMSA's apparent (partial) change of heart with respect to GGP's use of the cash collateral appears to reflect relief at both the fact that the DIP financing terms were amended so that the individual properties were not pledged as collateral for that loan and also the judge's clear statement in his ruling that he was not consolidating the entities for purposes of the bankruptcy case.
A hearing is planned for later this month to address, among other issues, whether the SPEs did a "bad faith filing."
Stats on Significant Drop in Commercial Mortgage Loans
The International Council of Shopping Centers recently reported on a 70% drop (from Q1 2008) in commercial mortgage loan originations. That number was a composite of statistics in the commercial-mortgage-backed conduit loans (an 83% drop), retail (76%), hotel properties (88%), office (66%), and multifamily (61%). According to this report, the dollar volume of multifamily loans by Fannie and Freddie was down by 26%.
