Wednesday, June 16, 2010

Expect a Wave of CRE Bankruptcies

From 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.

"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 last Tuesday.

"There are the perfect dynamics for a cram down 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. and hotel chain Extended Stay America Inc.

"If you do a cram down 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."

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