Capmark damaged by office property

Capmark Financial Group Inc., the lender that filed for bankruptcy this week, was making billions of dollars in property loans just as investor Sam Zell was exiting the U.S. office market in early 2007.

In 2006 and 2007, Capmark originated $60 billion in commercial mortgage loans, most for office buildings, according to the Sunday bankruptcy filing. While Capmark was lending, Mr. Zell was selling Equity Office Properties Trust at the top of the market for $39 billion, including debt.

Capmark collapsed under the weight of the loans it made and the debt that financed its leveraged buyout by a group led by Goldman Sachs Group Inc. and KKR & Co. By the time of the filing, Capmark had $18.5 billion in corporate debt, including $6.9 billion due in 2010 and $8.54 billion due in 2011, according to data compiled by Bloomberg News. As commercial property prices started falling, loan defaults accelerated. Payments were at least 60 days late on $4 billion of the $24.1 billion in loans Capmark listed as managed assets on June 30. That was up 166 percent from Dec. 31.

“They were aggressive lenders and the company was highly leveraged,” said Jeffrey Rogers, president and chief operating officer of Integra Realty Resources Inc., the largest U.S. commercial real estate valuation company. Capmark, based in Horsham, Pa., is an Integra client.

Officials at Goldman Sachs and KKR declined to comment, as did Joyce Patterson, a Capmark spokeswoman.

Sam Chandan, president and chief economist of Real Estate Econometrics, a property research firm in New York, said, “The Capmark bankruptcy reinforces that, in the case of institutions with large concentrations in commercial real estate, current disruptions to the market have the potential to impact their viability.”

Capmark and its units owe $7.1 billion to the 30 largest creditors without collateral backing their claims, according to court documents. The three biggest are Citibank NA, as administrative agent under the $5.5 billion credit agreement, with a claim of $4.6 billion; Deutsche Bank Trust Co. Americas, as trustee for the 5.875 percent senior notes and the floating senior notes due 2010, with claims of $1.2 billion and $637.5 million, respectively; and Wilmington Trust FSB, as successor trustee for the 6.3 percent senior notes due 2017, with a claim of $500 million, according to court papers.

Of the loans Capmark originated, office, multifamily and retail properties account for the biggest share of those that are delinquent.

Of the nonperforming loans, $444.7 million were made to office buildings, $282 million to apartment owners, and $243.7 million to retail properties, as of June 30.