Tipping Point

Tipping Point

By David R. Corder

Associate Editor

Last year Bradenton's Gevity HR Inc. acquired the assets of Tampa's Epix Holdings Corp. The deal between these two employee-leasing firms seemed to be a good one for all involved.

Publicly traded Gevity, for instance, immediately absorbed about 2,000 new employer-clients that leased 30,000 workers. The Tampa firm, then regarded by many as the largest employee-leasing firm in the area, cashed out in a $36 million deal.

The deal didn't bode as well for the investment group that owns the east Tampa office building where Epix leased its headquarters. Epix did not sell its liabilities in the deal, including a long-term lease in the Lakecrest office building.

The Lakecrest investors' subsequent decision to buy out the Epix lease turned out to be a bad decision. In mid-October, the Miami Beach firm that owns the note on the office building filed a foreclosure action against Lakecrest Office Investors LLC in the Tampa state courts.

The foreclosure is something of an unusual action these days, say most legal real estate experts. Strong buyer demand over the past few years for quality Tampa Bay area office properties makes foreclosure an option of last resort.

The action against this building in the Corporex Office Park also comes at curious time. Office occupancy rates in the submarket that includes the Corporex park have rebounded steadily over the past year from several years of stagnant growth.

In its most recent market report, for instance, the Tampa office of Cushman & Wakefield of Florida Inc. reports an overall vacancy rate of 14.3% in the Interstate 75 corridor submarket for the third quarter ended Sept. 30. That's down from 26.1% for the same period a year ago.

Such improvement in the submarket would seem to bode well for the three investors listed as co-defendants in the legal action.

Besides the corporate entity, the defendants include real estate investors Stanley Gottsegen and Gabriel Ehrenstein, both of Boca Raton, and Sarasota's Neil Malamud. Gottsegen, the investment group's managing partner, did not respond to a request for comment.

Lease-termination

Almost six years ago, the investment group purchased the nearly 66,000-square-foot building for slightly more than $6.7 million. The investors financed the deal with a $5.3 million, 10-year loan through General Electric Capital Corp.

A month later, GE Capital sold the mortgage in the secondary securities market to State Street Bank & Trust as trustee for Chase Commercial Mortgage Securities Corp. Chase Commercial subsequently sold the mortgage on the secondary securities market to U.S. Bank NA.

In September, U.S. Bank sold the mortgage on the secondary securities market for an undisclosed sum to Miami Beach-based LNR Partners Inc. Right away, this transfer signaled trouble.

Over the past 15 years, the Miami Beach firm has evolved into one of the largest holders of non-investment grade commercial mortgage-backed securities.

In the lawsuit, LNR Partners claims the Lakecrest investors defaulted on the loan by entering into a lease-termination agreement without prior written consent as required by the original GE Capital mortgage. Coral Gables attorney Laurel Myerson Isicoff, who represents LNR Partners in the foreclosure action, was unavailable for comment.

Over the past year or so, the lawsuit claims, representatives of either the Miami Beach firm or U.S. Bank tried to resolve the default. The two firms proposed an undisclosed distribution of the proceeds the investors reaped from the lease-termination agreement.

In the beginning of negotiations, the lawsuit claims, the lenders allowed the Lakecrest investors to use proceeds from the lease termination to pay for operating expenses. That included cash for debt service on a loan valued at nearly $6.8 million as of Oct. 6.

Meanwhile, the lawsuit claims LNR Partners and the Lakecrest investors reached an impasse over the use of the lease-termination proceeds. The Miami Beach firm claims the Lakecrest investors refused to negotiate in good faith. That apparently breached a provision in the mortgage that required the investors to resolve the dispute.

Because of the impasse, LNR Partners rescinded the agreement that allowed the Lakecrest investors to use the lease-termination proceeds to cover debt payments.

The Lakecrest investors had not responded as of Oct. 31 to the foreclosure action. Court records did not contain the name of the attorney who represents the investment group against the lawsuit.

Throughout negotiations, the Tampa office of Advantis Real Estate Services Co., a St. Joe Co. subsidiary and a GVA Worldwide Partner, has marketed the 17-year-old Lakecrest building as either a for-sale or lease property. The brochure published on the brokerage's Web site lists 46,446 rentable square feet available, roughly 79% of the building.