With a $160-million loan from Morgan Stanley Dean Witter, Tishman-Speyer acquired the two-tower former Standard Oil of California headquarters in 1999 for $190 million and proceeded to fill it up with Internet-related tenants that were paying rents as high as $70 per sf per year. By early 2001, however, the dot-com boom was bust and the 1970's development was back to half empty.

According to a Moody's downgrade of the loan published at the end of January, the properties are currently 17.1% occupied and do not generate enough cash flow to cover debt service or even all of the operating expenses. "Debt service and operating expenses are being paid from a cash collateral account that has a balance of approximately $56 million," according to the Moody's report. "Midland Loan Services, the special servicer, continues to explore resolution strategies for the debt."

The loan matured on Feb. 1, according to Moody's. A source close to Tishman tells GlobeSt.com the company "technically went into default" on loan before reaching an agreement with Morgan Stanley and Midland "to take it out of default so they can maintain ownership until it is sold."

The source says a brokerage firm that will market the property has been selected but not yet announced. An asking price, if any, has not been decided. Moody's report states that "while it's uncertain what the ultimate recovery on the loan will be, it's likely the proceeds will be less than the loan balance."

One top investment broker in town tells GlobeSt.com he suspects Tishman will ask for at least $150- to $175 per sf for the two buildings, one of which has been entitled for an upper-floor residential conversion. At $175 per sf, the sales price would be $127 million, $33 million less than the loan and $63 million less than Tishman paid at the top of the market.

Moreover, the investment broker expects that due to re-tenanting costs and necessary capital upgrades the building will actually be sold for between $100- and $125 per sf, or between $72.7 million and $90.9 million. "It will be a real interesting bellweather for this market," he tells GlobeSt.com.

Instant Insights /

Lender Prompts Disposition of Distressed Market Center

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