Singapore REIT Defaults on $88m CMBS Loan

Saizen Real Estate Investment Trust (REIT) defaulted on a ¥8bn (US$88.5m) commercial mortgage-backed securitization (CMBS) loan this week, the Singapore-based firm’s manager announced.

YK Shintoku, one of Saizen REIT’s nine tokumei kumiai (TK), or silent partnership operators, held the now-defaulted CMBS loan. While based in Singapore, Saizen REIT’s investments are comprised solely of regional residential properties in Japan totaling 161 properties located in 13 Japanese cities.

Saizen REIT said the maturity default will not affect the trust’s ability to operate, nor impair its ability to obtain further financing. The REIT added it believes YK Shintoku will not immediately foreclose on the properties underlying the loans and that it is possible the CMBS loan could be refinanced.

“The default of this loan is not indicative of the overall financial health of Saizen REIT,” said Chang Sean Pey, CEO of the REIT’s manager, Japan Residential Assets Manager Limited. “We will work closely with our asset manager and the lender of the YK Shintoku Loan to devise a viable solution and efforts to refinance the YK Shintoku Loan will continue.”

The primary implication of the default is an increase in the interest rate on the outstanding amount of the loan from 3.07% to 7.07%, creating an interest expense increase of ¥290.1m per year.

The Tokyo branch of Credit Suisse Principal Investments Limited initially provided the loan financing to YK Shintoku.

Japanese banks have remained relatively liquid during the global crisis. While not immune to the global economic conditions, some analysts believe the Japanese CMBS market will remain viable, despite large-scale pullbacks by foreign investment banks. This is because a number of large investment banks hold significant market share of CMBS activity in the country and any movement by an individual institution can cause significant changes to the overall market.

Write to Austin Kilgore.