The Wall Street Journal reported today that Maguire Properties, one of the largest office property owners in Southern California and a client that I have represented in the past, has warned that it will very likely default on $1.06 billion worth of debt encumbering seven properties. Maguire has said that it will likely turn the properties over to creditors rather than continue to operate them at cash-flow negative levels. Yet another sign of the troubles that await the commercial real estate market, the defaults on the Maguire loans appear to be payment defaults resulting from the sharp decrease in market rents and the dramatic rise in the vacancy rate. The article states that vacancy rates in Orange County are nearing 20%, up from only 6% three years ago.
Maguire briefly mentions that restructuring the debt is an option but it appears that their situation may be too dire. Analysts believe that their entire portfolio may be under water, making a long term restructuring solution a very unlikely option. Nevertheless, a restructuring option is still on the table and for individual investors may be more realistic than for an institutional investor like Maguire. The workout of a small single asset debt is much less of a daunting task than restructuring over a billion dollars worth of CMBS debt.