Beacon invests extra $200m in troubled $2.7bn loan

Six months after Beacon’s 20-building Seattle and District of Columbia portfolio was transferred to special servicing, the Boston-based firm has modified its debt load, pushing maturities out by five years.

Beacon Capital Partners has invested more than $200 million of additional collateral in a portfolio of 20 office properties in Seattle and the District of Columbia after refinancing the deal’s troubled $2.7 billion loan.

The Boston-based firm agreed to provide additional collateral in the form of pledges, cash, letters of credit and guarantees in its 2007 deal in return for a five-year extension of the debt and a slashing of the current pay rate almost by half, according to a report of the modification by the ratings agency, Standard & Poor.

The debt secured against Beacon’s Seattle and DC portfolio has been pushed out until 2017 on an interest-only basis, with the actual pay rate cut to three percent from 5.797 percent. The deferred accrual rate, the difference between the new monthly pay rate and the original rates agreed, will remain outstanding. S&P said the deal would allow Beacon to start selling and refinancing assets as it looks to delever the CMBS loan assets ahead of its original May 2012 maturity deadline.

The securitised loan was transferred to special servicing in April when the current cash flow debt service coverage fell to 0.2x after capital and leasing expenses. At the time, S&P said Beacon had warned it was “unwilling to commit additional capital to fund leasing costs, capital improvements and debt service shortfalls, which are imminent unless they are able to achieve a meaningful loan modification”.

Occupancy was set to become an issue for the 20 properties involved in the securitised loan, with S&P saying Beacon faced having to pay more than $300 million in leasing costs with an estimated 45 percent of the portfolio’s 9.8 million-square-foot of office space set to become vacant or see leases roll over in the run-up to 2012.

During the loan modification talks, Beacon continued to cover its debt payments, even though the margin between the portfolio's net operating income and its debt service costs fell to four percent as of the end of June, S&P said.

Among the properties secured by the loan are the Wells Fargo Center in downtown Seattle, as well as a 63 percent non-controlling interest in the partnership that owns the former Washington Mutual Tower at 1201 Third Avenue in Seattle.