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Friday, 17 March 2017

Morgan Stanley Paying $62.5Mln to Resolve Rep and Warranty Claim

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Commercial Real Estate Direct Staff Report

Morgan Stanley has agreed to pay $62.5 million to resolve a suit that alleged it had breached the representations and warranties it had provided when it sold a loan against an Ohio retail center to a CMBS trust.

The settlement resolves a lawsuit that C-III Asset Management had filed in 2011 against the investment bank, alleging that it had not properly disclosed environmental issues at the loan's collateral, the 506,141-square-foot City View Center in the Cleveland suburb of Garfield Heights, Ohio.

Morgan Stanley had provided the $81 million loan in 2007 and securitized it through Morgan Stanley Capital I Inc., 2007-IQ14. A year later, the loan transferred to C-III, the deal's special servicer, when environmental issues at the property became evident.

The property, at the junction of Transportation Boulevard and Interstate 480, was constructed on a landfill in 2006 and subsequently sold for $100 million. When it was undergoing an expansion, under its new ownership dangerous levels of methane were discovered leaking into its occupied spaces. That prompted tenants to flee. Walmart, which had occupied a 146,781-sf store, vacated its space, even though it still had another 20 years remaining on its lease, claiming the property's owner, investor Thomas Klein had defaulted on his obligations.

Other tenants exercised co-tenancy clauses in their leases and either sharply reduced the rent they were paying, or simply vacated. Cash flow plunged. In 2013, the property, then only 22 percent occupied, generated a net loss on $2.2 million of revenue, according to servicer data compiled by Trepp LLC. That compares with $4.7 million of cash flow in 2007.

In 2014, the property was appraised at a value of $2.2 million. Last year, that shrunk to a mere $200,000.

C-III filed suit in District Court for the Southern District of New York in order to get Morgan Stanley to buy back the loan. Three years ago, the court ruled in the bank's favor, arguing that C-III hadn't filed its complaint in a timely manner. So the servicer filed an appeal with the Court of Appeals for the Second Circuit in New York.

A trial was scheduled for last month. But that's become moot given the settlement, in which no admission of wrongdoing. It also doesn't include Morgan Stanley buying back the loan, which remains in the hands of the CMBS trust, which plans to offer it for sale.

The only remaining major tenant at the property is grocer Giant Eagle, with 79,381 sf through September 2026. Other tenants include Appleebee's Neighborhood Grill and Bar, with 6,500 sf through February 2028, and First Merit Bank, with 3,626 sf through July 2022.

Comments? E-mail Josh Mrozinski or call him at (267) 247-0112, Ext. 213.



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Additional Info

  • Syndicate to Realpoint: No
  • States: Ohio
  • Sector: Retail
  • Subject: Commercial MBS (CMBS), Legal Issues (LEGL)
  • Deal Name: Morgan Stanley Capital I Trust Inc., 2007-IQ14
  • Private: No
  • bloombergDealName: MSC 2007-IQ14
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Data Digest

 

CMBS DELINQUENCY VOLUME

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CMBS SPECIAL SERVICING VOLUME

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Top Bookrunners Domestic, Private-Label CMBS - 2016
Investment Bank #Deals Vol$mln MktShr%
JPMorgan Securities 14.94 10,350.16 15.14
Deutsche Bank 14.21 9,926.60 14.52
Wells Fargo Securities 13.36 9,513.96 13.92
Citigroup 10.87 8,061.79 11.80
Goldman Sachs 10.05 7,563.72 11.07

 

RCA CPPI

 

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CMBS 2.0 Spreads

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Top CMBS Loan Contributors - 2016
Lender #Loans Vol$mln MktShr%
JPMorgan Chase Bank 133.67 8,670.33 13.34
Goldman Sachs 156.20 7,418.37 11.41
Deutsche Bank 178.17 6,510.75 10.02
Citigroup 184.41 5,512.20 8.48
Morgan Stanley 113.18 4,130.53 6.35

 

 

 

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