REO Loans Sold ‘Substantially Above Par’


Not even one week after the sale of the Astor Crowne Plaza property generating excess liquidation proceeds that will pay back losses to the lowest-priced bond, another REO property appears to have been sold significantly above par, Barclays analysts note.

The Astor Crowne Plaza hotel in New Orleans (backing a $73 million loan in GSMS 2005-GG4) was sold for almost $117 million, slightly above its most recent appraisal in August.

The Related Group reportedly bought out of REO the Rivergate Plaza property backed by a $58.5 million loan securitized in LBUBS 2006-C4 for $104 million, analysts say, as the asset value increased.

After the loan was transferred to REO in September 2009 the asset appears to have gone through at a significant premium adjustment following its most recent appraisal in August 2013 that boasted the property value to $66 million.

Part of the reason was substantial capital improvements and a step up in leasing activity reported by the mortgage servicer, analysts wrote in a recent commentary.

Net proceeds from the sale are $95 million to 100 million.

After paying off closing costs, $7.5 million of ASERs and about $8.4 million of other servicer advances the sale leaves roughly $20 million in excess cash available to the trust.

It is not fully clear how sale strategies differ.

Some of these funds may be diverted to pay default interest to the servicer which has contributed nearly $31 million on the recent Astor Crowne Plaza sale, even though ASERs and advances added up to only about $5 million, analysts explain, indicating that default interest was charged.

If there was some cash left over after the default interest, its treatment will likely be different to what we saw in the liquidation of the Astor Crowne Plaza when the GG4 pro-sup explicitly stated that excess liquidation proceeds will not flow through the normal principal waterfall and will instead be used to reimburse the senior most bond carrying realized principal losses.

The language in LBUBS 06-C4 appears to be different, hence analysts expect excess liquidation proceeds in Rivergate Plaza sale will result in a cash paydown at the top of the structure along with a principal write-up of the equity tranche.

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