In a statement released by Moody's last week, an ongoing interest shortfall of roughly $37,500 per month will "continue until the loan is transferred back to the master servicer. At that point, a one-time resolution fee of $250,000 will also be payable to the special servicer. Special-servicing fees have caused an interest shortfall to Class E, which may not be ultimately recoverable."

"What's occurred is that the borrower and the servicer disagree over the appropriate amount of terrorism insurance," Tad Philipp, Moody's CMBS managing director, tells GlobeSt.com. "Fees are incurred as part of the special-servicing process, and the servicer has the right to put through a reimbursement of those bills. Servicers who are pursuing these cases are doing so in the best interest of the bondholders.

"What's frustrating is that the property has plenty of equity behind the loan," Philipp adds. In fact, the principal balance of the two classes of paper in question is $71.4 million.

"Each month, any large property with a single CMBS has all its cash flow swept into a lockbox," explains an industry source. "And out of that is paid all building operating expenses. CMBS is the top layer, and these are very secure bonds. As you go down through the layers of the mortgage, they get a lower priority. What Moody's is saying is that there wasn't enough to cover the two lowest layers--the most subordinate after taking into account all the other expenses."

Jamestown Corp. is majority owner of the 1.9-million-sf Rockefeller Center property. The Rockefeller Group Inc., which developed the building, also holds a minor piece of the asset. Our source tells GlobeSt.com that, if Jamestown were to attempt a building sale tomorrow, a potential buyer would certainly "want to see the shortfall resolved. But I can't imagine that $250,000 would stop a deal of that size."

But others see the situation in a larger, more menacing light. "This issue is broader than 1211," states Gail Davis Cardwell, senior vice president of commercial/multifamily for the Washington, DC-based Mortgage Bankers Association of America. "It's indicative of a systemic problem involving large single-asset transactions in major metropolitan areas where there is a threat of terrorist activity. This means that properties are not going to get financed and loans will be delayed. It is causing tremendous confusion in the marketplace, and the way to stop that is to get a fed reinsurance backstop."

Davis says that both parties in Congress are at last talking, and she is "hopeful that a bill will be passed by Oct. 18 when Congress goes home for the elections." The move by Moody's is only the latest value-backlash caused by the industry's lack of terrorism coverage. Two weeks ago, the agency marked 4 Times Square for downgrade. Both that Durst-owned asset and 1211 were in a group of 14 CMBS-based assets Moody's tagged for possible downgrade earlier this year.

And Moody's isn't the only purveyor of bad news. Fitch has also been slashing paper. As GlobeSt.com reported last week, the agency has downgraded nine AAA classes from three single-asset CMBS transactions. Houston-based mall Houston Galleria, Rockville, MD's Parklawn Office complex and 280 Park Ave. here are the three assets backing the certificates that were dropped to AA status, all of which were among the 13 deals to be placed on Fitch's Rating Watch Negative list in early June. The value of the nine certificates is nearly $834 million.

Calls to Jamestown and Durst were not returned by deadline.

Instant Insights /

Terrorism Strikes Again: Moody's Downgrades Paper Backing 1211 Ave. of the Americas

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