May Not Be Too Early to Watch This 2007 Single Tenant Loan

Normally we don’t start taking a hard look at big CMBS leases until they get within a year of the lease expiration date. However this particular story caught our eye when we were looking at servicer watchlist notes for January.

The loan is the $72.6 million Healthnet Headquarters note. The property is a 327,000 square foot office in Shelton, CT. Built in 1982 and renovated in 1989, the property was the home of Health Net of the Northeast. The firm is still listed at the sole tenant with a lease that ends in 2017. Watchlist notes describe a more tenuous situation. According to those comments, the building is only 44% occupied at the moment as “property once served as the Healthnet Headquarters but has been mostly relocated.” Even more concerning is this addendum: “Tenant is still paying as agreed for now.” This description has been there for several months, but we only stumbled upon it this month.

Based upon various media reports from the past few years, we are not certain what percentage of the 44% is currently housing Healthnet employees. Healthnet was acquired a few years ago by United Health and in late 2010, 750 Healthnet employees were terminated from the Shelton location. In 2012, Sikorsky Aircraft subleased 165,000 square feet of the space (story here) but at the time, the lease was executed only to give Sikorsky time to renovate a separate engineering facility.

The note makes up 1.7% of the collateral behind JPMCC 2007-LD11 and the loan is current. The anticipated maturity date is April 2017, but this is an ARD loan, so the ultimate maturity date is not until 2027. Given the multiple moving pieces and lack of clarity surrounding the property, investors in the LD11 deal might want to footnote the asset. The deal has seen only 1.57% in losses to date, but is sitting on almost $427 million of appraisal reductions – enough to clip bonds up to the about the D class.

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