The largest private landowner in downtown Los Angeles said it may have to file for bankruptcy protection, the latest sign of how the credit crunch has frozen a multibillion-dollar revitalization of the city’s downtown.
Real-estate firm Meruelo Maddux Properties Inc. said Thursday that it was working to reach agreements with four lenders after the developer stopped making interest payments on 26 loans valued at $266 million. Three of those loans are due, and the company hasn’t been able to extend them. “The debt capital markets have totally shut down,” Andrew Murray, the company’s chief financial officer, said in an interview.
It is the latest shoe to drop for Los Angeles’s downtown district, which has been the focus of a decade-long renewal project designed to convert old warehouses and office buildings into lofts, high-rise residential towers and an entertainment and retail district.
Meruelo Maddux, which owns land but has done little development, has reached 50% occupancy on its first luxury rental building, Union Lofts, which opened in mid-2008. Some of the prominent industrial real estate properties owned by Meruelo Maddux include: The Overland Terminal on Olympic/Alameda; Sci-ARC on 3rd; Seventh Street Produce Market on 7th; Salvation Army Building at 801 E 7th Street; Rykoff Building now occupied by American Apparel at 7th/Alameda; and the Chaffee Warehouse at Olympic and Alameda.
Meruelo is trying to sell its buildings to pay down debt and to persuade its lenders to restructure loans, but said that if those options fail, a bankruptcy filing could be a “strategic alternative.”
Full article printed in The Wall Street Journal, page A3
Of $25.7 billion in distressed assets, the Western U.S. takes $10 billion. However, the good news is that of all commercial property types in the U.S., Industrial has the lowest distressed amount of $700 million out of $25.7 billion, compared the higher amounts of Office, Retail, Apartment (multi-family), Hotel, and Development. Industrial includes warehouse and manufacturing buildings. According to Real Capital Analytics Troubled Asset Radar.
Some of the owners of the distressed or potentially distressed properties are taking preventative measures and seeking bridge loans prior to their primary loans expire. Many bridge loan terms max out at 18 months and have interest rates from 10-18%.
The City of Vernon’s Light and Power Department produces attractive electric rates compared to Southern California Edison. Typically Vernon is 30-40% lower than SCE. Rates vary between small/medium and large power users. The City of Los Angeles DWP also beats SCE in power rates, but typically Vernon is the cheapest. However, during the power shortage a few years back LA’s DWP was selling power to many neighboring cities and making a huge profit. SCE and Vernon both produce power and buy it on the free market so they are somewhat vulnerable to fluctuations in the power marketplace.
Additionally, Vernon is 30-60% lower in supplying water given a typical user consuming about 6,000 HCF (hundred cubic feet) of water per month.
When new lamps are installed in industrial warehouse and manufacturing buildings, 4 types of lighting technology are used.
The technology in high intensity discharge (HID) lighting is in some ways similar to fluorescent technology: an arc is established between two electrodes in a gas-filled tube which causes a metallic vapor to produce radiant energy. In this case, however, a combination of factors shifts the wavelength of much of this energy to within the visible range, so light is produced without any phosphors. In addition, the electrodes are only a few inches apart (at opposite ends of a sealed “arc tube”) and the gases in the tube are highly pressurized. This allows the arc to generate extremely high temperatures, causing metallic elements within the gas atmosphere to vaporize and release large amounts of visible radiant energy. There are three main types of HID lamps: mercury vapor, metal halide and sodium. The names refer to the elements that are added to the gases in the arc stream which cause each type to have somewhat different color characteristics and overall lamp efficiency.
Ballasts and Warm-Up Time:Like any gaseous discharge light source, HID lamps have special electrical requirements that must be supplied by a ballast. With HID sources, however, the ballast must be specifically designed for the lamp type and wattage being used. In addition, HID lamps require a warm-up period to achieve full light output. Even a momentary loss of power can cause the system to restrike and have to warm up again—a process that can take several minutes. In applications where constant illumination is important for safety and security, a backup system is often required.
Metal Halide Lamps: Metal halide lamps are among the most energy efficient sources of white light available today. These lamps feature special chemical compounds known as “halides” that produce light in most regions of the spectrum. They offer high efficacy, excellent color rendition, long service life and good lumen maintenance. Because of their numerous advantages, metal halide lamps are used extensively in outdoor applications and in commercial interiors.
Sodium Lamps: High-pressure sodium sources were developed primarily for their energy efficiency. Mercury and sodium vapors in the ceramic arc tube produce a yellow/orange light with extremely high LPW performance and exceptionally long service life (up to 40,000 hours). High-pressure sodium lamps render colors poorly, which tends to limit their use to outdoor and industrial applications where high efficacy and long life are priorities. Since these lamps produce light at only one wavelength in the yellow region of the spectrum, they are used where energy efficiency and long life are the only requirements.
Mercury Vapor Lamps: Mercury vapor lighting is the oldest HID technology. The mercury arc produces a bluish light that renders colors poorly. Therefore, most mercury vapor lamps have a phosphor coating that alters the color temperature and improves color rendering to some extent. Other HID types that offer higher LPW and better color properties have largely superceded the use of this lamp.
LED Lighting: Lighting fixtures using LEDs are the most energy-efficient and versatile solution for lighting your warehouse. Their energy consumption is lower than that of any other light source, yet their Lumen output is comparable or superior.
The compromise bill passed by the House of Representatives on Friday provides about $730 million for SBA programs, according to the Senate Committee on Small Business and Entrepreneurship. Here are some of the highlights that could prove to be useful to small business companies in Los Angeles and other cities:
FEES: $375 million to temporarily waive or reduce fees in the 7(a) and 504 loan programs. Small-business borrowers have priority, followed by lenders with less than $1 billion in assets, then by large lenders. This should lower loan costs for borrowers and lenders.
LOAN GUARANTEES: $255 million to allow the SBA to temporarily raise its guarantee to as much as 90% for 7(a) loans, excluding SBA Express loans. Maximum guarantees are now 75% for loans of more than $150,000; 85% for loans of $150,000 or less.
MICROLOANS: $30 million for third parties in the microloan program: $24 million to pay for the business consulting they provide; $6 million for the cost of direct loans they make. This program, which focuses on businesses with fewer than 10 employees and loans of less than $35,000, has seen demand increase during the recession.
BRIDGE LOANS: Allows banks to make 100% SBA-guaranteed, small, short-term loans to existing SBA borrowers in immediate financial hardship. Borrowers have 12 months to begin repaying the bridge loan and five years to complete repayment. Applies to loans guarantees of $35,000 or less made after the bill is signed.
SECONDARY MARKET: To help unfreeze the secondary market in which third-party investors buy SBA loans that banks have sold to brokers-dealers, the bill allows the SBA to make loans to broker-dealers and guarantee as much as $3 billion of existing debts in loan pools that are currently not guaranteed. The secondary market has been moribund since the subprime mortgage meltdown. Los Angeles Times
Real-estate firm Meruelo Maddux Properties Inc. said Thursday that it was working to reach agreements with four lenders after the developer stopped making interest payments on 26 loans valued at $266 million. Three of those loans are due, and the company hasn’t been able to extend them. “The debt capital markets have totally shut down,” Andrew Murray, the company’s chief financial officer, said in an interview.
