RCA in the commercial property press:

Mezzanine Debt Used to Acquire Cheap Office Property

Wall Street Journal reports: Scott Rechler sold his real-estate company—which grew from his family business to include New York office buildings—at the top of the market in 2007 for $4.1 billion. Now Mr. Rechler is positioning his new company to start buying again, the latest sign that some investors believe prices are at or near a bottom.

Mr. Rechler's RXR Realty as early as this week will take control of 32 suburban office properties from CLK/Houlihan-Parnes, a partnership that late last year defaulted on nearly $30 million in mezzanine debt held by RXR. Mezzanine debt was often used by real-estate buyers during the boom to fill the gap between equity and the first mortgage. Now, during the bust, some investors are buying delinquent mezzanine debt as a maneuver to take control of the underlying properties in the event the property owner defaults. Often, they can take control of properties on the cheap.

"A lot of these owners are faced with the choice of double down and put more equity in the property or just basically hand back the keys to the lender," said Dan Fasulo, a managing director with Real Capital Analytics. "Their equity's wiped out, they have near-term refinancing issues with the loan. There's just no way to make it work in a new paradigm."

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Posted by: Nina Turner

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