Venable's Cross sees wave of U.S. REIT bankruptcies (Reuter's)

June 15, 2010
(Reporting by Chelsea Emery, additional reporting by Tom Hals)
(Reuters) - Expect another wave of commercial real estate bankruptcies in the United States, particularly in the hospitality, retail and office building sectors, said a top bankruptcy attorney for Venable LLP on Tuesday.

"I think there will be another wave of large real estate investment trust (REIT) and large real estate bankruptcies" over the next year, Gregory Cross, head of the bankruptcy practice at law firm Venable LLP, said at the Reuters Global Real Estate and Infrastructure Summit in New York.

"There are the perfect dynamics for a cramdown in the marketplace," which could spur companies to file for Chapter 11, said Cross, who has worked on the real estate bankruptcies of mall owner General Growth Properties Inc (GGP.N) and hotel chain Extended Stay America Inc ESAIN.UL.

"If you do a cramdown plan, you're looking for a low interest-rate environment and low valuation. It seems to be the perfect time for those kinds of bankruptcies. So far there have not been as many as I would have forecast."

Cramdowns allow companies to reduce the principal on an outstanding mortgage to the current value and cut interest rates.

"This, and the six months after, is the year of bankruptcy," said Cross.

Hotel and other hospitality sectors will see their share of failures, said Cross, adding that retail and office buildings will also suffer. However, multifamily apartment buildings are likely to be exempt since "they are the most stable right now," he said.

Cross declined to name particular distressed or bankruptcy-prone properties.

Still, the collapse of the U.S. real estate bubble may not be as crushing as many had anticipated because U.S. regulators have allowed banks to extend, restructure and modify loans, James Koster, president of Jones Lang LaSalle Inc's (JLL.N) capital markets group, told Reuters on Monday.

The breathing room has given the real estate markets a chance to regroup and for values to rise above their rock-bottom levels, he said.

Though there is some $1.5 trillion of debt maturing over the next three years, Koster said a rash of foreclosures has not yet happened, and he doesn't expect it to happen.

"What we have seen is stable modifications and extensions of loans, so we didn't go through significant bankruptcies and foreclosures," said Koster. Banks are allowing "borrowers to live for a better day and in fact they help themselves live for a better day."

But Cross pointed to ongoing worries about the sustainability of the U.S. economic recovery.

"If we recover quickly, maybe I'm wrong. If we don't, then I'll be right," he said. "I'm not a great believer that we've emerged. I'm more of a double dip (recession) guy."

Grandpa:
Venable LLP Website (just in case REIT buyers opt to perform a bit more research...oh silly grandpa, RIET buyers skip research as it is too hard and confusing...

Recognized by BankruptcyLaw 360 as having one of the top five bankruptcy practices in the United States during 2009, Venable’s bankruptcy attorneys have been involved in a wide range of bankruptcy-related matters for a vast array of clients. As national bankruptcy counsel for major companies and financial institutions, we are constantly involved in complex bankruptcies, workouts and litigations throughout the country.

Banks are allowing "borrowers to live for a better day and in fact they help themselves live for a better day." Grandpa Translation: Kick the can down the road, extend and pretend and value the mortgages on a "mark-to-model" valuation and HOPE core economic factors improve dramatically during the "extend-and-pretend" show.