As unforgiving commercial mort-gage market conditions continue to challenge the financial services industry, Centerline Holding Co., the parent company of Centerline Capital Group - an alternative asset manager with a focus on real estate financing - has become the latest firm to make headlines.
The company delayed a term loan payment, saw a downgrade to 'B1' from 'B2' by Moody's Investors Service, and announced a 20% cut in its national workforce, all within the last week.
But it appears Centerline isn't much different than other financial institutions trying to maintain enough capital to ride out the economic challenges.
"We are doing what many companies have to do to reduce expenses and keep them more in line with revenues," said a spokeswoman for Centerline. This includes a staff cut by 20%, as part of a restructuring that is aimed at enhancing the company's special servicing and asset management functions.
Indeed, the company is focusing on growing its assets under management. Approximately a year ago, Centerline re-securitized its tax exempt bond portfolio, anticipating a decline in the tax exempt bond business, and has turned its business model into that of an alternative asset manager.
The company's current business lines are divided into affordable housing; commercial real estate, which includes CMBS and commercial products and agency lending; portfolio management, which is the special servicing unit; and credit risk products.
The company's asset managers and loan servicers that were serving affordable housing projects, have now been moved under the purview of the affordable housing group. "In the area of affordable housing, the tax credit business is dormant, so we made the best use of our existing resources," a spokeswoman for the company said.
However, Centerline's multifamily agency lending remains strong. Late last month, the company closed the last of nine multifamily housing loan transactions.
All loans were made in 2008 with Fannie Mae, under its Delegated Underwriting and Servicing or DUS program, and on behalf of a single borrower for a total of $131 million.
Centerline provided the refinancing for a portfolio of eight South County apartment properties in California, allowing the borrower to pay off first and second mortgages on those properties and free up equity to acquire and complete the rehabilitation of a ninth apartment complex - a 161-unit complex in Redondo Beach.
The loans on all nine properties are seven-year fixed rate, with the remaining year adjustable and pre-payable, without a pre-payment penalty any time during the adjustable rate period.
But this has not been enough to maintain confidence in the company's long term capital. On Oct. 30, Centerline received a notice from the New York Stock Exchange (NYSE) that it is not in compliance with one of the exchange's continued listing standards. Centerline's total market capitalization has been less than $75 million over a consecutive 30 trading-day period, and its last reported shareholders' equity was less than $75 million.
The company was told it has 45 days to submit a plan to the NYSE on how it intends to comply with the exchange's continued listing standards within 18 months. Centerline said it is working to provide a plan within the designated time frame.
Indeed, the company is currently in negotiations for a longer-term debt package, which is one of the reasons the term payment was able to be postponed.
On Oct. 31, Centerline amended its revolving credit and term loan agreement, allowing the company to defer an $18.8 million payment to its term loan lender for 21 days. The payment is now due by Nov. 21.
However, as a result of the payment deferment, Moody's lowered the company's corporate family rating to 'B2' from 'B1', expressing concern that "disruptive conditions in the commercial real estate, affordable housing and financial markets will continue to pressure Centerline's rating."
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