Fitch Ratings has downgraded a pool of loans, led in part by a 312-unit portfolio of Manhattan rental apartments owned by the Parkoff Organization.
The Parkoff Portfolio represents 10.3 percent of the total loan pool from Morgan Stanley Capital Trust, which trades under the name MSCI 2007 HQ-12. The size of the pooled loans was $1.96 billion at issuance, but the balance is down to $1.65 billion.
Great Neck, N.Y.-based Parkoff acquired the group of six rental buildings in 2007, and financed the deal with a $170 million mortgage based in part on the conversion of 87-rent stabilized units to market rate. According to data from Real Capital Analytics, the loan includes a 102-unit property at 30 East End and a 53-unit building at 25 East 67th Street.
Fitch reports that the landlord is behind schedule in converting those units to market rate, but the firm had planned to invest in major capital improvements and renovations to move the apartments. As of last month, there were 76 rent-stabilized units remaining in the portfolio.
According to Fitch, the portfolio — which includes 3 East 66th Street, 192-194 East 75th Street, 30 East 68th Street and 345-349 East 64th Street — is 96 percent occupied with an average monthly rent of $4,690. Citing data from REIS, Fitch said the Upper East Side submarket has an average asking rent of $3,725 per month with an average vacancy rate of 1 percent.
The Parkoff loan is current, with a debt service coverage ratio of 0.76. The landlord has posted a $5 million letter of credit as additional collateral, but Fitch said it has been unable to confirm whether the letter of credit will be renewed.
Fitch said that while it modeled losses at the properties based on the current cash flow, there is a high likelihood the loan could recover.
In Florida, the pool includes a separate Douglas Entrance loan, which is backed by five office buildings of about 470,000 square feet in Coral Gables. The loan was transferred to special servicing in April 2010, based on an eminent default. Chicago-based Transwestern Investment owns these properties.
The loan is current following a modification in June 2011, which included an extension until April 2014. As of December 2011, the properties were about 75 percent occupied, with an average rental income of $27.75 a square foot. The average vacancy for the Coral Gables submarket however is 10.5 percent and current market rents are $36 a square foot, according to REIS.
Transwestern officials were not available for comment. Parkoff officials did not return calls seeking comment.