Being knowledgeable in CMBS is a lot like being a good comedian or being successful at Jeopardy, it certainly helps to know a little bit about a lot of different topics. Good CMBS investors can rattle off the prospects of retailers like Sears and J.C. Penney; they know what cities, borrowers, and buildings could be impacted by $40 oil; they now know how to pronounce Lake Pontchartrain; and they have a grasp of the potential affect of the sequester on the defense industry’s spacial needs. Today we will add another off-the-beaten-path topic: pharma lawsuits.
Most CMBS investors are well aware of the potential impact UBS possibly moving from Stamford, Connecticut would have on CMBS. One of the big loans on the Stamford watchlist has long been the $82.8 million One Stamford Forum note. The property is a 504,471 square-foot office located at 201 Tresser Boulevard. At securitization, UBS was listed as the top tenant with 55% of the space. More recent servicer data pins the UBS footprint at 67%. The firm’s lease ends in 2020.
However, most CMBS investors may not have focused much on the second tenant in the building, Purdue Pharma. The privately-held firm is the only other tenant in the building and is primarily known for its pain medications, including OxyContin. According to servicer watchlist comments from 2013, it appears that at least some of the UBS space has been sublet to Purdue, so it is unclear precisely how much space Purdue has and how much UBS has vacated.
The news that CMBS investors will want to become familiar with is that Purdue is facing a lawsuit in Kentucky that reports suggest could be “crippling,” according to Purdue’s CFO, to the firm. Purdue has already fended off 400 personal injury lawsuits according to a Bloomberg story on the litigation. A recent ruling in Kentucky could open the firm to challenges on a class action basis.
The One Stamford Forum note makes up almost 6% of the remaining collateral behind BACM 2006-3. The deal has already seen losses reach the B class. For now, investors in the BACM deal may want to consider adding big pharma lawsuits to their list of Google searches.