The tallest building on the West Coast U.S. Bank Tower in Los Angeles (pictured, right) is at risk of loan default, according to Fitch Ratings in a report from Barclays Capital.
The building, which is backed by a $260 million mortgage, owned by real estate investment firm MPG Office Trust Inc.(MPG), was sent to special servicer. Acting on behalf of a special bond investor, special servicers can modify mortgages.
"While in the base case we do expect this loan to be extended and modified, there is a reasonable chance it could be liquidated with a small (5%) loss," analysts Keerthi Raghavan and Aaron Haan of Barclays stated.
Maguire previously stated its intention to hold onto the property until June 27, 2013 when a tax indemnification obligation on the property with Maguire expires, according to MPG’s 10-Q in a report from Barclays.
Occupancy has fallen to about 55%, which is a significant drop from 90% occupancy in 2003, according to loan research firm Trepp.
Given the size of the U.S. Bank Tower and the fact the property is nearly covering debt services, a loan of this size is normally expected to be modified, Barclays said.
However, MPG intends to hold onto the property through a modification or once its tax indemnification expires, give up the property.
"Maguire stated in its latest 10-Q that it continues “to have limited unrestricted cash”, which could make modification negotiations more difficult, as special servicers often require additional capital and a sweep of all cash flows as part of a modification," Barclays said.
MPG has an extensive downtown buildings portfolio including the KPMG Tower and the Gas Co. Tower.