An Office Portfolio in Distress
Things just keep getting worse for Norman Kravetz. The Realty Bancorp Equities principal defaulted this summer on the commercial mortgage-backed securities debt connected to a five-office-property portfolio, and now faces calls to cede control to a court-appointed receiver. The calls are coming via a Wells Fargo Bank unit on behalf of the commercial mortgage-backed securities holders.
Background on the Default
Kravetz-linked entities are on the hook for around $70 million, which is more than the five-building portfolio is worth. The 346,800-square-foot portfolio is spread over the San Fernando Valley, including three properties in Agoura Hills — one of which was home to the Los Angeles Rams for years before the team’s billionaire owner Stan Kroenke moved headquarters as part of a $10 billion development plan at Warner Center — and one in Calabasas and another in Woodland Hills.
Decline in Value
The five offices were valued at $101.6 million at underwriting in September 2019, a few months before the pandemic was declared and remote work took over. In July, the portfolio was appraised at $48.85 million. Occupancy was 71 percent and properties were not making enough money to pay off debt, running a debt service coverage ratio ranging downward to 0.59.
History of Default
This isn’t the first bad bet Kravetz has made. Realty Bancorp Equities defaulted on more than $100 million in loans tied to an office complex in Santa Monica; the company later sold the property at a price that didn’t cover its debt. The Real Deal previously reported on Kravetz’s delinquency on the five-building portfolio, after his debt landed in special servicing, and a multimillion-dollar haircut to the portfolio before the matter headed to court.
Other Cases of Office Distress
Leaning Tower of Pasadena
Southern California’s landscape of office distress goes beyond one valley: A nine-story property called the Pasadena Office Tower in the heart of the San Gabriel Valley faces foreclosure after its owners defaulted on $40 million debt. The default notice and foreclosure threat came after the owners, entities connected to Albert Taban and Michael Pashaie, managing partners at Jade Enterprises and Golden West Properties, saw the property’s value cut by more than half as tenants cleared out.
School Daze on Multifamily
Speaking of vacancies, Azusa Pacific University sold an uninhabited apartment complex to Legacy Partners for $91.8 million. The university received tax-exempt financing for the property that would become student housing — but occupancy lagged in the post-pandemic era on college campuses, leading to the sale.
Hudson Pacific Cuts, Adds to Board
Hudson Pacific Properties announced more changes to its board of directors. Mark D. Linehan left the publicly traded real estate investment trust after 14 years and was replaced by T. Ritson Ferguson. In a Securities and Exchange Commission filing, the company said Linehan stepped down “due to his desire to devote more of his time to other professional commitments,” and that he “expressed no disagreement with the company.” Ferguson was the chief executive of CBRE Global Investors and now an investment committee member.
Conclusion
The case of Norman Kravetz and his office portfolio in distress highlights the challenges faced by the commercial real estate sector, particularly in the wake of the pandemic. With declining values, increasing vacancies, and defaults on loans, the sector is experiencing significant stress. As the situation continues to unfold, it will be important to monitor the developments and their impact on the broader real estate market.
FAQs
- Q: What is the current status of Norman Kravetz’s office portfolio?
A: The portfolio is in distress, with Kravetz-facing calls to cede control to a court-appointed receiver due to default on commercial mortgage-backed securities debt. - Q: How much is Kravetz’s company on the hook for?
A: Kravetz-linked entities are on the hook for around $70 million. - Q: What is the value of the five-office-property portfolio?
A: The portfolio was appraised at $48.85 million in July, down from its original value of $101.6 million at underwriting in September 2019. - Q: Are there other cases of office distress in Southern California?
A: Yes, the Pasadena Office Tower in the San Gabriel Valley faces foreclosure after its owners defaulted on $40 million debt. - Q: What changes have been made to Hudson Pacific Properties’ board of directors?
A: Mark D. Linehan left the board after 14 years and was replaced by T. Ritson Ferguson.
