If you're in the CRE investing business, you've heard the drama surrounding this dabacle.
http://online.wsj.com/article/SB10001424052702304…
This is an example of a CRE investment gone horribly wrong for one party and great for another:
*In 2007, Walton St Capital pays RREEF/CalPERS $2.75B for 23M SF of industrial space, which translates to about $120/SF; debt structure - $1.1B senior desbt, with 8 layers of additional junior debt totaling $1.4B
*Walton St is sitting pretty, until the downturn; Walton St drops the ball, WCV management is a clusterfuck, and a lot of tenants bail from their buildings
*Behind the scenes, BX and Morgan Stanley jockey for position in the debt structure ("Loan-to-Own" strategy)
*Around 2Q-4Q of 2011, Walton St aggressively campaigns to dump the port, or at least portions of the port, on the mkt...but Walton St is not getting the valuation they want
*Fast forward to today - it looks like Walton St is just going to say "fuck it" and take a massive hit by defaulting
*The port's estimated value today is $1.2B (vs. the $2.5B of debt, which is due in 6/12)
BX's strategy in this deal is as good as it gets. Not only do they have the debt both senior and junior to Morgan Stanley's, they still come out profitable on the debt if they can't gain controlling interest. Smart.
Nice share.
Update - If this port doesnt unload at asking, MS will lose their investment...$150M, last time I checked. MS sucks at RE investing.
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