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Foreclosure
& Watch List : Take Me Over.A Weekly Column of Distressed Commercial Properties,
Mortgages and Corporate News
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found at costar.com
Feb. 4-10, 2007
In this week's Watch List, two business professors say beware of firms
looking to be taken over. Also a trio of New York officials lay out a plan to
keep the Big Apple the world's financial capital. We also highlight numerous
upcoming facility closures in California, Arizona, Ohio and Pennsylvania; and
properties on the watch list this week are in: Jersey City; Dallas, College
Station and Kingwood, TX; Chester, VA; Myrtle Beach; and Lake Placid, FL.
Caveat Emptor
When it comes to firms that put themselves up for sale, the rule of thumb should
be: let the buyer beware, say Derek Oler, assistant professor of accounting at
the Kelley School of Business at Indiana University, and Kevin Smith, assistant
professor of accounting at the University of Kansas School of Business. The two
released an investigation last week on firms that publicly advertise a desire to
be acquired, firms they call "take-me-over" or TMO firms.
Their sample consisted of 397 firms that publicly announced their desire to be
taken over from 1990 and 2005.
As a general rule, most TMO firms they investigated showed evidence of both debt
management problems and fundamental underperformance, suggesting that they were
financially distressed. Contrary to their expectations, however, they found only
marginal evidence of aggressive accounting in the form of higher discretionary
accruals.
Not surprisingly, they found that making the TMO announcement increased the
likelihood of the firm receiving an offer. Or surprisingly, however, in doing
so, the firms also surrendered significant bargaining power and might
consequently have reduced their chance of being acquired.
Said as only academics can say it of that disparity the two speculated that:
"This information asymmetry problem has two possible implications: first,
if potential acquirers recognize this problem, the TMO announcement may have the
detrimental effect of reducing the likelihood that the firm becomes a target.
Second, TMO firms may suffer negative post-TMO announcement returns once the
private bad news becomes public."
Of the firms in Oler and Smith's sample, 28% received an acquisition offer
within one year of making their announcement (and 20% were actually acquired
within that year). The firms that received an offer were those showing
relatively better fundamental performance measures (higher earnings per share
and cash from operations).
All other TMO firms incurred significant losses in terms of market value in the
following year.
New York in Danger of Becoming Second Class
Is New York in danger of becoming a secondary city instead of the world
financial capital?
U.S. Sen. Charles E. Schumer, New York City Mayor Michael R. Bloomberg and New
York Gov. Eliot Spitzer think it is possible.
They warned last week that because of stringent regulations and high litigation
risks, New York could lose its status as a global financial market without a
major shift in public policy.
If New York goes from being the financial capital of the world to becoming only
a regional market, as they predict will happen within the next 10 years,
"every aspect of New York life will suffer, not just financial
services," Sen. Schumer said.
"Let's be clear: The financial services industry is one reason that the
20th century was the American century and that New York became the world's
capital," said Mayor Bloomberg. "We've outlined a range of practical
yet innovative steps to ensure the 21st century is just as bright. This is one
of many challenges to our long-term economic health and stability that require
we move beyond partisanship to find solutions."
Senator Schumer and Mayor Bloomberg commissioned the joint report,
"Sustaining New York's and the U.S.'s Global Financial Services
Leadership," which sets out a series of recommendations to counter emerging
threats to the United States' position as the world's financial leader.
The joint report stipulated that while many of the causes are due to improved
markets abroad and sophisticated technology that has virtually eliminated
barriers to the flow of capital, a significant number of the causes for
America's declining competitiveness are self-imposed.
For instance, U.S.-based financial services firms are now unable to attract and
retain many of the highly skilled professionals they need because of caps on the
number of visas available under U.S. immigration rules.
A greater perceived litigation risk has also reduced the appeal of the U.S.
market to many foreign firms.
Finally, a complex and sometimes unresponsive regulatory framework has not only
prompted many foreign firms to stay out of the U.S. markets, but also is forcing
more business overseas because of the complexity and cost of doing business in
U.S. financial markets regardless of where they are located.
The joint report offered several recommendations.
· Provide clearer guidance for implementing the Sarbanes-Oxley Act.
· Implement securities litigation reform with particular short-term emphasis on
leveraging the SEC's existing authority.
· Ease immigration restrictions facing skilled non-US professional workers.
· Protect US global competitiveness in implementing the Basel II Capital Accord
Form an independent, bipartisan National Commission on Financial Market
Competitiveness to resolve long-term structural issues.
· Modernize financial services charters and holding company structures.
· More actively managing attraction and retention for financial services. And
· Establishing a world-class Center for Applied Global Finance, and potentially
creating a special international financial services zone
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name, title, company and e-mail address. You can reach me by clicking on the
byline above or at mheschmeyer@costar.com
Facility Closings
The following upcoming plant, store and office closures were reported last month
in Ohio.
· Outsourcing Services Group Inc., the parent company of Precision Packaging
& Services Inc., is restructuring its operating companies in connection with
its efforts to obtain additional financing. Part of this restructuring includes
a divestiture of Precision's Monroe facilities. As a result, Precision's
facilities on 801 Garver Road and 1120 Reed Road will be closed unless they can
be sold to an entity that will continue the operations. In the event it is
unsuccessful in finding a buyer for the Monroe facilities, Precision plans to
terminate its operations at those locations between March 10 and March 24,
affecting 267 employees.
· Sekely Industries Inc is considering permanently discontinuing its operations
at 250 Pennsylvania Ave. in Salem sometime this month, affecting 270 employees.
· The Westland Macy's store at 4141 W. Broad St. in Columbus, is closing early
next month affecting 61 employees.
· Penske Logistics LLC plans to close its facility at 2920 Brecksville Road in
Richfield on March 31, affecting 92 employees.
· Cooper Standard Automotive Inc. has decided to close its manufacturing
facility at 701 E. Lugbill Road in Archbold beginning about March 25. It will
take 12 to 18 months, to complete the shutdown. And
· Atlantis Plastics Inc. plans to close its injection molding plant in Warren,
affecting 30 employees.
The following upcoming plant, store and office closures were reported last month
in Pennsylvania.
· OSI Collection Services Inc. is planning to close its plant at 311 New
Rodgers Road, Suite D, in Levittown effective March 18 affecting 105 employees.
· GAF Materials Corp. is planning to close its plant at 218 W. Bayfront Parkway
in Erie effective March 31, affecting 159 employees. And
· The Peer Group is planning to close its plant at 225 Franklin St. in
Johnstown effective March 27, affecting 129 employees.
A following upcoming plant, store and office mass lay offs were reported last
month in Arizona.
· Alcoa is planning to lay off 90 employees from now through March at its tube
mill plant at 6833 W. Willis Road in Chandler; and 40 employees at its Pimalco
facility there from March through June 30.
· Verizon Business is planning to lay off 112 employees at 2080 W. Chandler
Blvd. in Chandler on March 9.
· Pegasus Solutions Inc. is planning to lay off 163 employees at 14000 N. Pima
Road, Ste. 100, in Scottsdale on March 9.
· INFONX is planning to lay off 316 employees at 7850 E. Escalante Road in
Tucson on March 9.
· The Sharon Cos. is planning to lay off 74 employees at 6029 W. Washington St.
in Phoenix from March 2 to March 31.
· Quebecor World Great Western Publishing Corp. is planning to lay off 71
employees at 1850 E. Watkins in Phoenix starting next week through April 30. And
· AT&T is planning to lay off 122 to 150 employees at 1355 W. University in
Mesa on March 23.
The following upcoming plant, store and office closures were reported last month
in California.
· Ligand Pharmaceuticals Inc. plans to reduce its workforce by about 267
positions or approximately 76%. Included in the reduction are 40 home office
employees at 10275 Science Center Drive in San Diego and 23 field based
employees who were laid off last month. The rest of the restructuring will take
place in the first quarter of 2007.
· AMIS Holdings Inc. in Pocatello, ID, plans to reduce costs through a
consolidation of design centers. The restructuring plan includes a workforce
reduction of approximately 80 to 85 employees worldwide, representing
approximately 3% of its total workforce. As part of this reduction, the company
will be closing a design center in Carlsbad.
· Aplus.Net Internet Services is closing down at 10350 Barnes Canyon Drive in
San Diego effective this week affecting 60 employees.
· Atlas Spring Manufacturing Corp. is closing down Feb. 20 at 150 E. 157th St.
in Gardena, affecting 98 employees.
· Cytyc Corp. is closing down this week at 301 E. Evelyn Ave. in Mountain View,
affecting 104 employees.
· Gruma Corp. is laying off 83 employees this week at 5505 East Olympic Blvd.
in East Los Angeles; 62 employees at 11559 Jersey Blvd. in Rancho Cucamonga; and
29 employees at 3800 Van Owen St. Unit 102, in Burbank.
· Hexcel Corp. is closing down at 75 N. Mines Road in Livermore affecting 83
employees.
· Owens Corning HomExperts is closing down at the end of this month at 7066 Las
Positas Dr., Suite E, in Livermore, affecting 166 employees; and at 1960 Chicago
Ave., Suite D-7 in Riverside, affecting 79 employees.
· Patterson Frozen Foods Inc. is closing down this week at 100 W. Las Palmas
Ave. Patterson, affecting 633 employees.
Be the First To Get Watch List
Want to receive notice of when a new Watch List is posted? E-mail me your
name, title, company and e-mail address. You can reach me by clicking on the
byline above or at mheschmeyer@costar.com
Fairfield Inn - Chester, Chester, VA
The loan on this 115-room hotel at 12400 Redwater Creek Road built in 1997 was
transferred to special servicing in October 2006 due to a potential default
caused by Marriott sending a default notice under the franchise agreement.
Marriot is requesting the borrower complete a performance improvement plant in
the amount of $1.1 million and the borrower is requesting it be allowed
additional financing against the property to pay for it.
Best Western Inn at Chimney Hill, College Station, TX
The borrower on this 98-room at 901 University Drive built in 1981 was sent a
termination letter for the Best Western flag. Borrower is in litigation with
Best Western. The loan is current and the situation is being monitored.
Lake Placid Inn & Conference Center, Lake Placid, FL
The borrower on the loan on this 98-room hotel built in 1970 and renovated in
1993 at 2165 U.S. 27 fell behind on payments due to weak cash flow. Negotiations
to bring the loan current are in process. Foreclosure action has begun, however.
Kings Crossing Town Center, Kingwood, TX
The borrower on the loan on this 48,435-square-foot mixed-use center is
performing under forbearance agreement whereby principal and interest is kept
current while catching up on escrows from excess cash flow. An additional
payment for capitalized legal fees and default interest was paid in December.
I-7 Journal Square, Jersey City, NJ
This now vacant retail 8,885-square-foot property is in a location slated for
re-development. The rest of entire urban block has already been razed and a
major project is planned. The borrower has kept loan current pending sale of
now-vacated buildings. The borrower anticipates property will be sold and close
no later than June 2007 and no monetary default should occur.
Catalina Apartments, Dallas, TX
The borrower on this 123-unit complex at 3425 South Polk St. saved the property
from foreclosure by appearing at the courthouse steps with a certified check
sufficient to bring the loan current and make December's payment.
Broadway Place Apartments, Myrtle Beach, SC
The loan on this 72-unit complex at 1500 Coastal Lane was transferred to special
servicing in June 2005 due to a monetary default. The borrower has been unable
to bring the loan current and the property was on target for a July 2006
foreclosure sale when the borrower filed bankruptcy. A plan was received in
October providing for either payoff or reinstatement. Objections to that plan
have been made on several grounds. CWCapital became the special servicer on Dec.
22.
Compiled by CoStar Group from the following sources: Fitch Ratings, Standard
& Poor's, Moody's Investors Service, CoStar Property Professional,
Securities & Exchange Commission CMBS filings; CMBS bondholder reports,
Worker Adjustment and Retraining Notifications and corporate news releases. Business
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“There’s so much inventory out there that the buyer can pick and choose,” said Susan Sirles Fidler, a Realtor at Re/Max 10, Oak Lawn. But she cautioned, “The stuff that’s almost free is almost free because it’s going to cost you an arm and a leg to put it back together. It’s not buyer beware as much as buyer be smart.”
