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DALLAS-A $261-million loan covering seven buildings belonging to Younan Properties Inc. has been returned to original lender Wells Fargo from special servicers LNR Partners Inc. The loan, which represented three office properties in Dallas and four in Chicago, moved to special servicing during Q1 2009 because of what was considered potential default.

From the viewpoint of the Woodland Hills, CA-based Younan Properties, however, the withholding actually concerned reserves for tenant improvements in the portfolio. In Dallas, the portfolio consist of Energy Square I, II and III, on Central Expressway. The four office properties in the Chicago metropolitan area include 200 N LaSalle, a high-rise office building in the Chicago CBD; 1600 Corporate Center, Rolling Meadows; Bannockburn Corporate Center, Bannockburn; and Kensington Corporate Center, in Mount Prospect.

“We had our own fund reserves to cover costs of tenant improvements, but toward the end of last year, when the recession became worse, lenders tightened up lending practices and tried to stabilize by keeping customer funds as long as they could,” explains company chairman and CEO Zaya Younan. He tells GlobeSt.com the inability to draw from the funds interfered with Younan Properties’ ability to pay off the loan promptly while keeping enough in reserve for TIs.

Media reports about the matter several months ago said Wells Fargo, the main servicer of the CMBS-backed loan, denied Younan’s request to withdraw funds from the reserve because the company hadn’t met conditions of a December 2007 lease extension and expansion request for one Chicago property, the 200 N. LaSalle St. building.

Younan says he was almost relieved when the loan went to LNR. “It’s difficult to discuss these issues with a regular servicer, because they don’t necessarily have the capacity to understand this complex a matter,” he comments. “The special servicers are more knowledgeable about understanding these types of issues.”

Still, while the dispute was being resolved, it meant Younan Properties had to pay tenant improvements out of its own coffers until the lenders gave approval to draw from the reserve. All of this, Younan says, happened in a volatile economic environment.As a result, “we had to go back to our original operational philosophy and manage our buildings effectively and efficiently to maximize cash flows,” Younan acknowledges. “We’re working smarter and better now.”

Not that operations had been out-of-hand before. But “during the past five years, we witnessed a phenomenal period during which we would purchase two buildings a month. We grew, we hired a lot of new people who weren’t educated about our philosophy and managing assets intelligently,” Younan remarks. “As a result, we became a little lax in our operating practices.”

The recession and loan dispute, were wake-up calls to the company. Rather than focusing on getting as much square footage into the portfolio as possible Younan says his company is managing smarter with its focus on operations.

This will stand the company in excellent stead, especially as former economist Younan believes the recession is at an end, or almost there. “I agree with the Fed chairman and Treasury Secretary that we’re technically finished with the recession and are in the early stages of stabilization and recovery,” he remarks.

He says he’s seeing positive movement from tenants in the form of discussions about expansion. As for concerns about the refinancing of expirations due through 2012, Younan says he has faith that the government and banks are working toward solutions to deal with maturing loans.

“During the past two years, people were contracting because of fear,” Younan comments. “But now people are comfortable that the recession might be ending and recovery taking place.”

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