CMBS disaster: The Dos Lagos Promenade

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Subprime JD's picture
Subprime JD
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CMBS disaster: The Dos Lagos Promenade

The Dos Lagos Promenade is a massive retail commercial real estate development in Southern California, in the city of Corona. It is a part of a pool of the J.P. Morgan Chase Commercial Mortgage Securities Trust 2008-C2. The pool has a total balance of $1.16 billion. 83% of the pool matures by 2017 and 2018. Dos Lagos composes 10.7% of the pool, and has a loan balance of $125 million that matures in Aug 1, 2017. The loan number is JPMC08C20001. The link below shows the details. Dos Lagos Prom is found on page 28.

http://www.secinfo.com/d12mb8.tK5.c.htm

Dos Lagos Promenade has not made debts for the last 2 months. The monthly payment is $650,000 or a total of $7.8 million a year. Moreover, property taxes are roughly $250,000 a month or 3 million a year. Thus, Dos Lagos has to generate at least $900,000 a month in rent just to cover taxes and interest payments!!! Insurance is also a issue but im leaving that number out because of tenant agreements.

So we have a 125 million dollar loan that is already in default. The ballon payment of 125 million is due in 7 years. It is a interest only loan. Even assuming that the retail mega center was not in default how in the world were they ever planning on paying the ballon payment?? Even if the place generated 2 million a month in rents, that would leave only 1 million in profits (also exclude for taxes 700k). With 700k a month X 12 $8.4 million a year. 8.4 X 7 years= $60 million. That doesnt even cover half of the ballon payment. Obviously the bozos who entered into this deal were assuming that with rising property values and equity in the property that they would be able to either sell it or refi the note. Unfortunately for them and many others the exact opposite happened.

So we have Dos Lagos in default for 2 months now. They cant even make the $650,000 a month in payments. I personally know a few tenants that have shops there and the rent is killer, with some guy paying $20,000 a month to rent a 3500 square foot pad for a restaurant. The guy has been putting money into the place for months now. Hes willing to give up the lease, with no cost for the business. The property value at this point for the entire promenade is probably around 80-90 million. Whoever is sitting on the note is going to take a massive hit because in addition to Dos Lagos there are 2 hotels that are in default in the pool as well. Two large hotels make up a portion of the pool and the $110 million balloon payment is due on Jan 1, 2017.  20% of the pool is in default and the pool was formed in May 2008! Not even 2 years and this deal has gone horribly bad.

Just a inside look at what is going on in the murky and messed up world of structured ponzi finance. Thank you JPM.

 

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