Rating agency Morningstar has raised a red flag on the potential default of California’s $220m Maple Drive portfolio loan due to the upcoming departures of several major tenants.
The loan, the second largest in the JPC07L11 CMBS, is backed by six buildings at three locations (335-345 North Maple, 9242 Beverly Boulevard and 407 North Maple Drive) in Beverly Hills, California, where News Corp, Netflix and Relativity Media will likely exit their leases in the coming months.
News Corp, which occupies 28.1% of the 584,000 sq ft of total space, plans to depart when its lease expires in May 2016. Also, 164,000 sq ft of space at 407 North Maple Drive, formerly occupied and headquartered by News Corp-owned social networking platform MySpace, remains vacant.
“Whether the loan can avoid default depends in part on if a tenant can be found to fill the space now leased by News Corp,” the Morningstar report stated.
Netflix, which leases about 91,195 sq ft, plans to consolidate its offices in the area after reportedly signing a lease for 200,000 sq ft at Sunset Bronson Studios in Hollywood.
Meanwhile, film production company Relativity Media, which occupies 10.8% of the space at 335-345 North Maple and 9242 Beverly Boulevard, has filed for bankruptcy and plans to sell of its remaining assets. That company’s lease is likely to be rejected, according to Morningstar.
News Corp exiting its lease will peg rent losses at around $6.5m per year and the loss number for Relativity Media could be around $3.4m, according to Morningstar.
“With the 2014 net cash flow at $17.5m, the loss of these tenants could push cash flow below the $12.2m debt service in the short run,” according to the report.