Last year, Montvale, NJ.-based Empire American Holdings placed No. 28 on Multifamily Executive's annual ranking of the Top 50 Owners list with 40,776 units. They nabbed the No. 23 spot (with the same number of units) the year before. Come 2011, a three-peat may be in the air, however.
According to a Fitch Ratings alert earlier this week, two Empire multifamily pools (Empirian Multifamily Portfolio Pool I and III, which is also known as Lexford portfolio) were transferred to special servicing. The balance on the first pool totaled $384.8 million and the third one totaled $330.3 million. In both cases, KeyBank serviced as the master servicer and C-III Asset Management served as the special servicer. The reasons for the transfer of both loans was listed as imminent default by Fitch.
Empire contends the default was actually strategic. That wouldn't be a huge surprise in an environment where owners are letting properties fall into default to initiate discussions with their servicers or get a discounted payoff. "Empire American Holdings requested the transfer of two of its Lexford multifamily housing property loans into special servicing because of current market conditions and to restructure the underlying debt," the company said in a statement to Multifamily Executive.
Washington D.C.-based CoStar is reporting that the two loans comprise 157 multifamily properties with 14,824 apartments units—more than one-third of Empire’s portfolio. The CoStar report said:
"The Empirian I Properties portfolio consist of 78 multifamily rental communities totaling 7,964 units located across eight states. The properties range in size from 50 to 244 units, with an average of 102 per location, and are in 66 cities across eight separate states: Florida (23 properties); Georgia (15); Indiana (nine); Kentucky (five); Michigan (two); Ohio (21); Pennsylvania (one); and Tennessee (two).
The Empirian III Properties consist of 79 multifamily rental communities totaling 6,860 units located across eight states. The properties range in size from 41 to 251 units, with an average of 87 per location and are located in 61 cities across eight states: Florida (23 properties); Georgia (14); Indiana (11); Kentucky (six); Maryland (four); Michigan (two); Ohio (18); and Pennsylvania (one)."
The fact that Empire’s holdings went into special servicing came as no surprise to many in the industry. Earlier this year, New York-based Real Capital Analytics (RCA) reported that the company had problem loans.
“They had assets in trouble already, and given that these loans were made at the top of the market, it was only a matter of time,” said Ben Thypin, senior market analyst at RCA.
By losing nearly 15,000 units, Empire trails only New York-based Tishman Speyer in the loan volume taken back by special servicing, according to RCA. (Tishman lost New York's massive Stuyvesant Town and Peter Cooper Village complex to special servicing earlier this year.) And more could be going back as well. The company is in negiotiations with its servicer about another loan within the same Lexford portfolio. There hasn't been a decision made about the outcome of that loan.
“The borrowers has other properties in trouble that were financed under similar terms at a similar time. It only stands the other properties are of similar quality,” Thypin says. “Since they were financed at the same time, they’re probably not doing that well either.”
Multifamily Executive reached out to KeyBank and C-III for this story and was unable to reach representatives at either company prior to publication.