Wednesday, April 22, 2009

Tough Times Pressure Maguire to Restructure Debt on Texas Complex



Robert Maguire, who stepped down last year from his post as chief executive of Maguire Properties Inc., isn't the kind of guy who walks away from a fight.

He fought hard to hold onto his company, the largest office building owner in downtown Los Angeles. Mr. Maguire resigned as chief executive last May after his bid to take the company private failed. This year, Mr. Maguire disclosed that he had accumulated 19.4% of Maguire Properties' equity and might try to take back control of the firm.

A slump in business travel has pushed occupancies at the Marriott hotel at Maguire Partners' Solana complex into the 60% range.

Now, Mr. Maguire, 74 years old, is facing pressures from loans on Solana, a mixed-use property he owns through his private company, Maguire Partners.

Solana is located in the cities of Westlake and Southlake, Texas, near Dallas-Fort Worth International Airport and contains about 1.9 million square feet of office and retail space and a newly expanded hotel. The complex's office and retail vacancy rate, usually in the 5% range, has risen to about 10%, according to Maguire Partners.

Among the shrinking tenants: Sabre Holdings Corp., which owns online-travel agency Travelocity, last year opted not to renew its lease for about 145,000 square feet of office space, though it still occupies space in the complex.

The tougher times have pushed Maguire Partners to ask lenders to restructure payments related to some $360 million in debt secured by the property.

"It made sense to take the bull by the horns and say, 'Let's talk and let's fix it,'" said Tom Allen, a partner with Maguire Partners. Mr. Maguire, who is managing partner of Maguire Partners, characterized the move as a "fairly routine" request to change the structure of funding the loans' reserves. Reserves are typically part of a borrower's payments that are set aside for such uses as improving the property for new tenants.

Companies who rate commercial mortgage-backed securities, or CMBS, saw the request differently. Asking to modify the terms of debt, even reserves, is considered a request for debt relief that triggers the transfer of the property to companies known as special servicers that handle loan workouts, said Adam Fox, a senior director at Fitch Ratings' U.S. CMBS group.

Last month, Fitch placed the transactions that include the Solana loans on rating watch for a possible downgrade. Likewise, Realpoint LLC, a Horsham, Pa., credit-ratings firm, also put the debt on its watch list for possible default.

A Realpoint report said one company servicing a portion of the debt said the borrower had requested relief due to an "inability to cover debt service" after the expiration of an office lease and poor performance of the Marriott hotel. The slump in business travel has pushed occupancies at the Marriott hotel down into the 60% range, said a person familiar with the property.

The loans are fixed at a 6.1% interest rate and mature at the end of 2013, Realpoint said.

Mr. Maguire maintains he hasn't defaulted on his loans and that the concerns that he is in danger of doing so are "overblown." He also lamented the lack of flexibility that comes with CMBS loans.

"We have a very attractive CMBS loan ... but CMBS loans are cumbersome to administrate," he said in a statement.

Other big landlords also have had problems with the CMBS structure. Executives at General Growth Properties Inc., which entered one of the biggest-ever real-estate bankruptcy reorganizations last week, partly blamed its difficulty in dealing with CMBS special servicers for its Chapter 11 filing.

It was back in the 1980s that Maguire Partners first began developing the nearly 1,000-acre tract that was to become Solana. It now represents a large chunk of the five million square feet of commercial real estate that Mr. Maguire owns through Maguire Partners and various other companies.

His holdings also include roughly 60 acres of hangar, office space and fuel farms at Van Nuys Airport in Los Angeles.

Mr. Maguire declined to say what would happen should the request for renegotiating the loans not be accepted. But there is also some Texas-style hope on the horizon. In June, a joint venture between Maguire Partners and Range Resources Corp., of Fort Worth, will begin drilling natural-gas wells in Solana.

"It should be very, very profitable," Mr. Maguire said.

Mr. Maguire declined to comment on the status of his efforts to reclaim control of Maguire Properties. In a January filing he disclosed that he pledged a large portion of his shares in Maguire Properties as collateral securing a personal loan from Wachovia Bank NA that matures on June 1, 2010.

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By MAURA WEBBER SADOVI