Maguire Properties not mulling bankruptcy

NEW YORK: Maguire Properties Inc, one of the largest owners of office buildings in Southern California, said on Monday it would avoid bankruptcy even as two subsidiaries defaulted on mortgage payments and it plans to walk away from several properties.

The announcement is the latest example of the toll taken by the commercial mortgage crisis, which to Federal Reserve officials is a major threat to the economy as it tries to extricate itself from recession.

"We are not considering bankruptcy," chief executive Nelson Rising told analysts, adding the company was comfortable with its cash position and optimistic about attracting investment.

Maguire's stock fell as the company announced the defaults and said that it would "dispose" of seven properties, but turned higher after the CEO's call. The stock rose 15 cents to end at US$1.04 (US$1 = RM3.51) on the New York Stock Exchange, after earlier falling as low as US 71 cents.

By abandoning properties, Maguire may be setting a bad precedent for the US$700 billion commercial mortgage-backed securities market that financed a massive run-up in the sector through 2007. The trend could mean increased losses on deals in the market at a time when the Fed is calling on investors to participate in a programme aimed at restarting lending to companies like Maguire.

"They basically said that they are giving back buildings that are worth less than what they paid for them," said Thomas Fink, a managing director at Trepp, which aggregates commercial mortgage data. "We would anticipate that there will be some write-downs on some transactions."

Maguire said in a filing that the two subsidiaries failed to make debt service payments on mortgage loans associated with properties in Orange County and Los Angeles. It said its board had approved the disposal of the seven buildings to shore up its cash position.

Maguire said it will no longer fund the cash shortfall on the properties' mortgages.

Six of the loans were financed in the CMBS market at its peak from 2005 to 2007, and cash flow from the properties depended on fates of some tenants tied to the residential mortgage meltdown, including subprime lender Ameriquest Mortgage Co.

Maguire recorded a noncash impairment charge of US$345 million associated with the assets, which include Park Place I and II properties in Irvine, part of a residential and office building complex the company bills as an architectural gem. Falling revenue from Park Place II is related to the exit and 2007 bankruptcy of another leading subprime lender, New Century Financial Corp, according to Realpoint LLC.

By Reuters