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Clock Ticking For Morgan Stanley Fund V

December 3, 2009

We had covered Morgan Stanley’s troubles in the recent past, including its walking away from its massive Crescent deal, and the looming troubles it is facing on the CNL deal (think Maui Prince), and the Blackstone/Equity Office assets it acquired at the top of the market.

WSJ has a piece on the CNL deal and Fund V, a $1.75B vehicle used to acquire resort properties.

But the five resorts have been hammered along with the rest of the luxury-hotel market by the economic downturn, making it difficult for them to pay debt service and possibly even operating costs. The resorts’ combined cash flow declined to $84 million in this year’s first half from $150 million during the last six months of 2007, according to debt-rating company Realpoint LLC. Their average occupancy fell to 62.5% from 72% in that same span.

The Claremont Spa in Berkeley is part of this fund, along with some other resort assets located in Arizona, Southern California, and Florida.

The servicer overseeing the mortgage last month transferred it to its special servicing team tasked with handling complex negotiations with borrowers, according to Realpoint. A recent monthly report issued by the servicer, PNC Financial Services Group Inc’s Midland Loan Services, noted that the loan was transferred “due to servicer determination of imminent default.” The report also said the borrower was “requesting extension options.”

The mortgage comes due in February 2011. Meanwhile, rating firm Fitch Inc. said Midland told its analysts that the resorts’ cash flow no longer covers the cost of their operations. Representatives of Midland and Morgan Stanley declined to comment.

Morgan made a pretty big splash when it handed the keys back on the Crescent deal last month, but the reality is that they still have billions of additional dollars to write off, and much of it involves San Francisco Bay Area assets.

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