EPA-TENANTS.ORG
PROTECTING EAST PALO ALTO TENANTS AND FAMILIES
PROTECTING EAST PALO ALTO TENANTS AND FAMILIES
Why would Wachovia approve what was arguably such a high-risk loan? Limited documentation indicates that Wachovia may have intended to sell the loan as part of a commercial mortgage-backed securities (CMBS) deal. However, such deals typically required a minimum of six months to complete, and between the date of loan origination and late 2007, the CMBS market collapsed.
Wachovia Bank's residential development group can be reached at:
John Reid
(704) 383-1385
john.reid@wachovia.com
Please reference Wachovia loan number 505850696.
Due to ongoing problems resulting from the sub-prime mortgage crisis, on October 3, 2008, Wachovia announced it would be merging with Wells Fargo. The combined company is now headquartered in San Francisco.
The Wells Fargo Bank corporate board can be reached at:
John Stumpf, President & CEO
Wells Fargo & Company
P.O. Box 63750
San Francisco, CA 94163
BoardCommunications@wellsfargo.com
Wells Fargo outlines its commitment to corporate responsibility and the communities it serves in its annual corporate citizenship reports. Wells Fargo's involvement through Wachovia in Page Mill Properties II, LP, clearly violates the Wells Fargo corporate values statement.
Thus far, the corporate offices of Wachovia and Wells Fargo have declined to comment.
Are other lenders involved in Page Mill Properties predatory equity scheme?
Yes. Greenwich Capital Financial Products, a subsidiary of RBS (Royal Bank of Scotland), appears to have provided a large bridge loan that allowed Page Mill to finance its initial purchases in East Palo Alto.
RBS regional headquarters can be reached at:
600 Steamboat Road
Greenwich, CT 06830
Tel: (203) 625-2700
Greenwich Capital Financial Products can be reached at:
10250 Constellation Boulevard, Suite 2600
Los Angeles, CA 90067
Tel: (213) 437-2000
TOP Contact: EPA-TENANTS.ORG
Wachovia Bank's residential development group can be reached at:
John Reid
(704) 383-1385
john.reid@wachovia.com
Please reference Wachovia loan number 505850696.
Due to ongoing problems resulting from the sub-prime mortgage crisis, on October 3, 2008, Wachovia announced it would be merging with Wells Fargo. The combined company is now headquartered in San Francisco.
The Wells Fargo Bank corporate board can be reached at:
John Stumpf, President & CEO
Wells Fargo & Company
P.O. Box 63750
San Francisco, CA 94163
BoardCommunications@wellsfargo.com
Wells Fargo outlines its commitment to corporate responsibility and the communities it serves in its annual corporate citizenship reports. Wells Fargo's involvement through Wachovia in Page Mill Properties II, LP, clearly violates the Wells Fargo corporate values statement.
Thus far, the corporate offices of Wachovia and Wells Fargo have declined to comment.
Are other lenders involved in Page Mill Properties predatory equity scheme?
Yes. Greenwich Capital Financial Products, a subsidiary of RBS (Royal Bank of Scotland), appears to have provided a large bridge loan that allowed Page Mill to finance its initial purchases in East Palo Alto.
RBS regional headquarters can be reached at:
600 Steamboat Road
Greenwich, CT 06830
Tel: (203) 625-2700
Greenwich Capital Financial Products can be reached at:
10250 Constellation Boulevard, Suite 2600
Los Angeles, CA 90067
Tel: (213) 437-2000
TOP Contact: EPA-TENANTS.ORG
Wachovia Bank's Role
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How is Wachovia Bank involved?
Typical predatory equity schemes are leveraged with bank loans at values ranging from 60% to 80%. This means that $60 to $80 of every $100 invested by the firm is borrowed money. This allows the firm to maximize its profits in a rising market, but it also exposes them to correspondingly large losses when markets contract. Predatory equity deals are frequently over-leveraged in the sense that rental income at the time of purchase is not high enough to support the debt service.
In June 2007, Wachovia Bank provided Page Mill Properties with a $243 million loan, $221 million of which was allocated to the $270 million purchase price of its East Palo Alto Woodland Park portfolio (Page Mill Properties II, LP). A multi-family commercial loan such as this would include a five or ten year fixed term with a 30 year amortization. Assuming an interest rate of 6.75%, Page Mill's monthly debt payment would be roughly $1.58 million per month with large balloon payments near the end of the loan's term. Total rents at time of purchase were roughly $1.60 million per month. Total rents as of June 2009 were roughly $1.44 million per month. Considering estimated property taxes and other operating expenses of $0.34 and $0.57 million per month, respectively, these properties appear to have had negative net cash flow throughout Page Mill's ownership.
With an estimated reserve burn rate of roughly $1 million per month (DSCR < 0.45), it is not surprising that Page Mill failed to make an interest and $50 million balloon payment on August 4, 2009. In response to these missed payments, Wachovia filed notices of default on Page Mill's 1800 unit East Palo Alto apartment portfolio on September 25, 2009. Notices of trustee's sale were posted at the properties in early January 2010. Wells Fargo foreclosed on the portfolio on March 2, 2010. Although Wells set the opening bid on the 101 properties at roughly 50% of the original purchase price, there were no other bidders. Page Mill began purchasing the properties in late 2006 for a total price of $270 million. Wells Fargo's aggregate opening bid was $142 million.
Default rates for commercial loans of this vintage (2007) are climbing rapidly (see below) and may represent the next wave of problems in the continuing financial crisis.
Typical predatory equity schemes are leveraged with bank loans at values ranging from 60% to 80%. This means that $60 to $80 of every $100 invested by the firm is borrowed money. This allows the firm to maximize its profits in a rising market, but it also exposes them to correspondingly large losses when markets contract. Predatory equity deals are frequently over-leveraged in the sense that rental income at the time of purchase is not high enough to support the debt service.
In June 2007, Wachovia Bank provided Page Mill Properties with a $243 million loan, $221 million of which was allocated to the $270 million purchase price of its East Palo Alto Woodland Park portfolio (Page Mill Properties II, LP). A multi-family commercial loan such as this would include a five or ten year fixed term with a 30 year amortization. Assuming an interest rate of 6.75%, Page Mill's monthly debt payment would be roughly $1.58 million per month with large balloon payments near the end of the loan's term. Total rents at time of purchase were roughly $1.60 million per month. Total rents as of June 2009 were roughly $1.44 million per month. Considering estimated property taxes and other operating expenses of $0.34 and $0.57 million per month, respectively, these properties appear to have had negative net cash flow throughout Page Mill's ownership.
With an estimated reserve burn rate of roughly $1 million per month (DSCR < 0.45), it is not surprising that Page Mill failed to make an interest and $50 million balloon payment on August 4, 2009. In response to these missed payments, Wachovia filed notices of default on Page Mill's 1800 unit East Palo Alto apartment portfolio on September 25, 2009. Notices of trustee's sale were posted at the properties in early January 2010. Wells Fargo foreclosed on the portfolio on March 2, 2010. Although Wells set the opening bid on the 101 properties at roughly 50% of the original purchase price, there were no other bidders. Page Mill began purchasing the properties in late 2006 for a total price of $270 million. Wells Fargo's aggregate opening bid was $142 million.
Default rates for commercial loans of this vintage (2007) are climbing rapidly (see below) and may represent the next wave of problems in the continuing financial crisis.
