Pre-forclosure Note On Leasehold Property Being Sold.

I am looking for a JV in this leasehold commercial office space opportunity in Palo Alto, CA.

I was contacted earlier this week by the note beneficiary (doesn’t want to sell the property as that would trigger a sales commission on the transaction), and they are interested in bidders perform due diligence with them down in LA. So here are a couple questions / problems that I would like people to think about and then indicate interest..

1. There is an inconsistency between the ground lease and the sub-lease (don’t have a copy) which governs the subject property. The master lease runs until 2034, whereas the info I am receiving from the bank is that the sub-lease expires in 2011.

What happened to the missing 23 years and can they be “recovered”. 23 * 1,486,332/yr (current rent) in NNN rent would add >$34M in additional cash flow to the property.

The 2nd party to the lease has been suspended (by sec. of state).
2. Due to parking constraints, approximately 20K sq. ft. of space needs to be moth-balled. At the current NNN lease rate of 1.90/ft, this is an additional $456K in cash flow/yr, if this parking problem can be addressed (I have a couple ideas).


I am looking to see if there is anyone out there that would be interested in this note. The rental broker thinks the note will go for 5M-6M

Thanks.


[ Edited by cjmazur on Date 05/19/2005 ]

[ Edited by cjmazur on Date 05/19/2005 ]

I am confused. What is the collateral for the loan? The land? or the Master lease?

The land, which is leased from The Stanford University Trust and the building on the land which are can be leased

Since the lease expires in 5/6 years according to the bank paperwork, it basically a note that have a futurevalue of 0.


I hope this makes it clear.


[ Edited by commercialking on Date 05/19/2005 ]

So Stanford owns the land, and has entered into a land lease that expires in 2034.

And some prior land tenant has built out this office building and leased it to a single NNN tenant and their lease expires in 2011?

The lender took the land lease as collateral on a loan (to build the building?) which is now in default and they would like to sell their note? Is the underlying tenant making their payments? Does the note include an assignment of rents?

Yeah, thats an interesting transaction.

[ Edited by commercialking on Date 05/19/2005 ]

I'll call w/ details, but for anyone that's interested.

Stanford leases land to X-company thru 2034

X-co leases land to Y-co thru 2011, financied w/ note

Y-co defaults on note

Bank takes over, creates receivership, and fixes place up and leases it out (rent stabilization)

Bank is now selling note w/ receivership and assignment of rents in place.



[ Edited by cjmazur on Date 05/19/2005 ]