Sparks of Hope from Investment Sales by jianghongl

VIEWS: 4 PAGES: 17

									       MARK HESCHMEYER, EDITOR                                         MARCH 4, 2010                                   WWW.COSTAR.COM/

             A WEEKLY COLUMN FOCUSING ON DISTRESSED MARKET CONDITIONS, COMMERCIAL REAL ESTATE PROPERTIES,
                               MORTGAGES AND CORPORATIONS PUBLISHED BY COSTAR NEWS

                                                                        IN THIS WEEK'S ISSUE:
Sparks of Hope from Investment Sales .......................................................................................................................... 1
Behringer Harvard Takes Control of 1650 Arch thru Loan Purchase ............................................................................. 4
Continental Towers Complex in Chicago Goes into Default ........................................................................................... 4
CMBS Outlook: Multifamily Still Stressed; Retail Half Way There .................................................................................. 5
Confidence in Florida Land Again ................................................................................................................................... 6
Economy Deals Black Gaming a Bad Hand ................................................................................................................... 7
Orleans Homebuilders To Seek Sale thru Ch. 11 ........................................................................................................... 7
Pacific Western Bank Sells $324 Mil. of Impaired Loans ............................................................................................... 8
Mercantile Bank Revision Adds $10 Million More to Losses .......................................................................................... 9
Heritage Commerce, Mercantile Bancorp Required To Preserve, Raise Cash .............................................................. 9
Regulators Close Rainier Pacific Bank ......................................................................................................................... 10
2010 To See Fewer Store Closures .............................................................................................................................. 10
Blockbuster Shuttering Up to 545 Stores During 2010 ................................................................................................. 11
Hummer: Stalling Out for Good? ................................................................................................................................... 12
Local Closures & Layoffs .............................................................................................................................................. 12
Lease Cancellations ...................................................................................................................................................... 13
Loan Maturities .............................................................................................................................................................. 14
Watch List: Largest REO Loan Properties .................................................................................................................... 15




                                               Sparks of Hope from Investment Sales
          2010 Institutional-Quality Property Sales Showing Year-over-Year Improvement in Many Categories
      By: Mark Heschmeyer
      Large dollar investment sales seem to be emitting faint sparks of hope for the commercial real estate outlook so
      far in 2010 and they are coming particularly from the ashes of the multifamily and hospitality sectors.

      Just to be clear, property sales with price tags of $5 million or more were still down 16% in January from what
      they were in January 2009, according to CoStar Group Inc. And that was a steeper decrease than we had seen
      in November and December. However, the average size of the properties sold this past January was 5% smaller
      than a year ago and the number of deals was down 15%. Overall, the average price per square foot being paid
      for institutional-quality properties was up from $141 to $149 January to January. That was the third month in a
      row that the average price paid was more than it was in the year-earlier period.

      What's more, multifamily sales in the $5 million and up category increased 50% over the year earlier. This was
      the second month out of the last three that multifamily sales had increased month over month. Apartment sales
      were up in November and flat in December.

      Hospitality property sales also took a huge upward turn in January – up more than 250% over the year-earlier
      period. Although, it was the first monthly increase since the recession started, the trend over the last four months
      has clearly been improving for hotel properties. They were down 58% in October 2009 compared to October
      2008, but down only 1% in the December-to-December period.

      No one is jumping to the conclusion that the results indicate commercial real estate has turned a corner, but they
      do seem to lend some credence to the belief that a painfully slow rebound may have been ignited.




 THE WATCH LIST NEWSLETTER                                                                                                                                                          1
  "We'll see more transactions involving institutional quality property because buyers are beginning to understand
  that prices for top-quality properties may be at or near a bottom," said Bob Bach, chief economist at Grubb &
  Ellis. "I think we'll see a gradual increase in sales this year of perhaps 20% to 30% or possibly considerably
  more."

  "We'll also see [more activity in] Class B and C troubled assets in secondary and tertiary markets because
  lenders realize there's no reason to hang on for better prices because these properties will be the last to
  recover," Bach said. "Prices are expected to drift moderately lower, more into the strike zone where buyers and
  sellers will start to make deals. But the pricing correction is [still] probably [only] two-thirds to three-quarters over
  with."
  MULTIFAMILY INVESTMENT SALES
  "There has undoubtedly been an uptick in transaction velocity in multifamily deals, and I believe it is due to a
  variety of factors," said Darron Kattan, partner and senior multifamily broker for Franklin Street Real Estate
  Services in Tampa, FL. "Multifamily is always the top choice of investment dollars and therefore there are a lot of
  buyers looking for deals. Nothing new in this cycle versus previous where multifamily is the first to recover due in
  large part to the availability of buyers. Multifamily was actually the first to hit the distressed radar screen, with the
  shortest term leases (outside of hotels), and therefore became the first to get hit hard by the downturn and land
  on asset managers' desks at lenders and servicing companies, and therefore are the first working through the
  system."

  In addition, Kattan noted that AIMCO and Equity Residential were large net sellers in 2009 due to balance sheet
  and stock pricing issues. That, he said, opened the door for attractive deals to hit the market.

  Tim Wang, vice president, senior investment strategist for ING Clarion in New York noted that Freddie Mac,
  Fannie Mae, and HUD have been dominating the multifamily financing.

  "This is the only property sector that you can still lever up to 75% loan to value and have positive leverage to
  juice up investment returns," Wang said. "The Fed plans to end its $1.25 trillion mortgage debt purchase
  program by the end of next month, which could potentially lead to an increase in GSE mortgage rates. So, there
  is a rush in the marketplace to take advantage of the attractive financing terms and do multifamily deals before
  this deadline."
  HOSPITALITY INVESTMENT SALES
  "Hotel demand is highly correlated with economic growth," Wang said. "Historically, it is one of the first property
  sectors to recover after recession. The sector is definitely improving, albeit from probably the steepest downturn
  in the U.S. lodging industry history. We are seeing generally stabilized occupancy while the average daily room
  rate is still declining but at a slower rate. The major difference in this downturn is that there was excess hotel
  supply delivered to the market in 2008-2009. Consequently, the revenue per available room recovery this time
  around could be slower than in the past."

  Gordon L Wicker, chief operations officer for AXIA Real Estate Appraisers in Tucson, AZ, said, "with respect to
  the hospitality market statewide, average daily room rates and average daily occupancies remain well off 2007
  numbers, so most sales activity in the larger regional/national market appears to be an increase in activity from
  REITs both as a long-term investment, and also due to a lack of attractive investment alternatives."

  Timothy D. Chamberlain, principal at Koda Ventures LLC, and senior director at Lee Kennedy Co. Inc. in Quincy,
  MA, also noted that hospitality, while still distressed, is becoming appropriately priced.

  "Hospitality is discounted enough to start to move and apartments represent stabilized cash flow, which is what
  the market wants today," Chamberlain said. "All other classes are getting kicked down the road and are not yet
  priced appropriately for a reasonable risk adjusted return."
  OFFICE, INDUSTRIAL AND RETAIL INVESTMENT SALES
  "There will be an uptick in volume in 2010, but not much," Chamberlain said. "2011-'12 will be an active years for
  the industrial, office and retail food groups."




THE WATCH LIST NEWSLETTER                                                                                                     2
  Of the three primary commercial real estate property sectors, 2010 investment sales numbers seem to indicate
  that office properties have improved the most over 2009. For starters, the pace at which sales have been
  declining has slowed dramatically. October 2009 sales were 50% fewer than they were in October 2008. That
  dropped to 24% fewer for December 2009 over December 2008. And in January of this year, office property
  sales of $5 million and up were off just 6% from what they were a year earlier. Notably, the average price per
  square foot is down dramatically from what it was a year ago: $158 compared to $202.

  Retail and industrial property sales were still way down from year earlier numbers. Retail sales in January totaled
  38% less the year-earlier period and industrial sales declined 68% month over month.

  "Retail will generally continue to struggle until investors can get a feel for when occupancy rates and net
  operating incomes will stop deteriorating," said Mac McCall, senior director of Franklin Street Real Estate
  Services in Atlanta, GA. "With many retailers continuing to see declining sales, especially mom and pops,
  vacancy rates will continue to tick up without the added boost of increased employment in the overall economy."

  "Additionally," McCall continued, "if you factor in the potential of bank-owned retail properties hitting the market in
  the coming years, buyers of this product will be able to get away with charging lower rents because their
  acquisition basis is much lower than their neighboring properties which were either built or acquired during the
  peak of the cycle and therefore have to charge higher rents to justify their mortgage payments. Both of these key
  factors make it a tough sell to a potential investor to invest in an asset with so much uncertainty regarding future
  cash flows."

  Manish Rajguru, who oversees the evaluation of CMBS and other CRE debt instruments at Red Pine Advisors
  LLC in New York, said that, "the industrial [property sector] should increase, especially those related to trade
  (exports in particular). The office and retail property sectors should continue to lag given uncertainty of growth in
                                                                                   (please continue reading on page 4)
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THE WATCH LIST NEWSLETTER                                                                                                   3
  (SPARKS continued from page 3)
  office-using employment and consumer respectively (and General Growth Properties' fallout as some malls will
  have to be repositioned/closed)."
  BUYER DEMOGRAPHICS
  The buyer profile of institutional quality properties has shifted in the last four months from what it was a year
  earlier. Developer/owner and investment manager buyers continue to be the primary buyers of properties and, in
  fact, have increased their outlay year over year. Developer/owner purchases were up to about $7.3 billion in the
  last four months compared to $6.8 billion in the same period a year earlier; and investment manager buys were
  up to $5.5 billion from $3.7 billion.

  REITs and corporate buyer have decreased their buying activity in the last four months from a year ago. REIT
  activity was down slightly from $5.4 billion to $5 billion; and corporate buying activity was down from $3.5 billion
  to $2.6 billion.

  Notably, it appears that banks and financial institutions have stepped up their foreclosure activity. Bank/finance
  firms accounted for $1.9 billion in purchases in the last four months up from $480 million in the same period a
  year earlier.



        Behringer Harvard Takes Control of 1650 Arch thru Loan Purchase
  By: Mark Heschmeyer
  Behringer Harvard purchased the first mortgage secured by 1650 Arch Street, a 553,349-square foot, 27-story
  office tower in Center City Philadelphia.

  Behringer Harvard did not provide details of the transaction. The original loan was held in a CMBS trust and had
  a balance as of Jan. 31 of $42.77 million and carried an interest rate of 6.43%. The loan is scheduled to mature
  in August 2012.

  "This investment demonstrates our continued commitment to the Philadelphia market, and to 1650 Arch Street,"
  said Deidre Hardister, vice president of asset management for Behringer Harvard. "Since the departure of
  WolfBlock, the debt structure secured by 1650 Arch Street has presented challenges. Now that a Behringer
  Harvard entity controls the senior debt, we have the flexibility required to upgrade the property and invest capital
  to lease the vacant space."

  Hardister was referring to tenant WolfBlock LLP voting to dissolve and cease its law practice. WolfBlock
  occupied more than 144,000 square feet.

  "We plan to make significant capital improvements to 1650 Arch Street this year, including lobby and exterior
  renovations and upgrades to the elevator and mechanical systems," Hardister said. "The property has available
  for lease approximately 176,000 contiguous square feet of office space."



              Continental Towers Complex in Chicago Goes into Default
  By: Mark Heschmeyer
  Two subsidiaries of Prime Group Realty Trust, each of which own separate portions of the Continental Towers
  Complex in Rolling Meadows IL, defaulted on their respective first mortgage loans encumbering the complex
  totaling $115 million.

  Continental Towers LLC owns Tower I, Tower III and the Commercium at the Continental Towers complex. Its
  portion is encumbered by a first mortgage loan from CWCapital LLC totaling $73.6 million. Continental Towers
  Associates III LLC owns Tower II its portion is encumbered by $41.4 million loan from the same lender.

  Continental Towers Associates III informed CWCapital that cash flow from the property is not sufficient to pay the
  required escrows and debt service payments. Because the loans are cross defaulted, that put Continental
  Towers LLC into default as well.



THE WATCH LIST NEWSLETTER                                                                                                4
  Continental Tower II is a 281,528-square-foot office building with 12 stories; more than 217,000 square feet is
  listed as available for lease. Continental Tower III has about half of its 281,651 square feet available for lease.
  Continental Tower I is nearly fully leased.

  The subsidiaries are currently in discussions with CWCapital on a resolution.
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          CMBS Outlook: Multifamily Still Stressed; Retail Half Way There
  By: Mark Heschmeyer
  While multifamily vacancy rates are expected to stabilize in certain markets, Fitch Ratings' outlook for the sector
  in the near-term remains negative. Although vacancy rates are expected to reach their peak of 8.9% in 2010,
  rents will take longer to recover, as landlords continue to offer significant concessions to maintain occupancy.

  The multifamily market faces several challenges to its recovery including high unemployment and declining
  immigration. In addition, the increasing affordability of single-family homes resulting from depressed prices and
  government programs intended to stabilize the single-family market will continue to impact multifamily demand.

  Landlords have been offering rent concessions to maintain or increase occupancy, a trend that is expected to
  continue in the near term. According to PPR, a CoStar Group subsidiary, rent growth will not occur until 2012.
  But then look out: Come 2012, rents will take off, growing a cumulative 10% across the PPR's 54 markets it
  covers from their trough to the end of the forecast. West Coast metros will post the most spectacular recoveries.
  San Jose rents will rebound by more than any other market in the PPR54 at a cumulative 21%, followed by
  Orange County at 18%, San Francisco at 17%, and Seattle and Los Angeles, both at 15%, according to PPR.



THE WATCH LIST NEWSLETTER                                                                                               5
  Fitch Ratings' multifamily delinquency index is 8.33% as of February 2010, an increase from the prior month's
  rate of 7.54%. This is expected to climb to nearly 13% in the near future as the Peter Cooper Village/Stuyvesant
  Town loan hits 60+ days delinquent. The multifamily delinquency rate is second only to hotels at 16.44%.

  States that represent a disproportionate share of delinquencies in rated CMBS issuance are generally areas that
  have suffered most in the residential real estate downturn, including: Nevada (23% of multifamily loans are
  delinquent); Tennessee (21%); Florida (18%); and Texas, which has limited barriers to entry and as a result has
  experienced over building, also has a high delinquency rate of 11%.

  Some of the stronger markets with lower delinquency rates include: Washington (less than 0.1% of multifamily
  loans are delinquent);-Pennsylvania (1.1%); New Jersey (2%); and Washington, D.C., which has benefited from
  an expanding federal government, remains healthy as well, with a multifamily delinquency rate of less than 0.1%.
  RETAIL DECLINES
  Although retail sales are expected to improve modestly in 2010, Fitch maintains a negative outlook for U.S.
  CMBS retail properties. Fitch expects that average retail revenues will decline 20% from their 2007 highs.
  Although a modest increase in 2010 sales is projected, this is unlikely to rescue the many properties with
  severely eroded equity positions.

  Macroeconomic factors such as high unemployment and a challenging consumer credit environment are
  expected to continue to impact retail performance. Declining revenues and systemically overleveraged positions
  will continue to impact CMBS retail properties. Revenue declines have largely been the result of falling rents
  (both base and percentage) as well as several significant retail bankruptcies. As retail sales have declined,
  occupancy costs have skyrocketed for many retail tenants. The inevitable outcome for these tenants is either
  store closings, or renegotiation of lower rental rates. In order to keep retail occupancies up, property owners will
  likely be forced to accept lower rental rates from tenants with leases rolling over.

  Retail delinquencies are expected to reach 8% by the end of 2010. The retail delinquency rate for Fitch-rated
  CMBS transactions stands at 4.94%, as of February 2010. This ranks third highest among delinquency rates by
  property type. Due to the expected continued decline in retail and other CMBS property types, 25% of rated
  CMBS tranches maintain a negative outlook.

  Just as in the multifamily sector, CoStar Group's PPR projects that retail rents will begin to increase in 2012. Yet,
  real rent levels will remain well below the previous market peak even through the end of 2014, according to
  PPR's Retail Market Performance Report released this month.



                                  Confidence in Florida Land Again
  By: Mark Heschmeyer
  In a sale that may strongly signal the stabilization of Florida's troubled residential real estate market, Starwood
  Land Ventures LLC and Lennar Corp. finalized the purchase of 5,449 residential lots and 36 model homes in 38
  Florida markets from Tousa, a land developer based in Hollywood, FL, that filed for bankruptcy in 2008. These
  land holdings constitute one of the most desirable real estate portfolios to come to market in years.

  The purchase of the properties positions Starwood Land as one of the state's most prominent residential land
  investors. Starwood Land Ventures now owns 13,100 homesites with over 6,400 of these within 50 Florida
  communities. Additionally, the company owns over 6,700 homesites in Phoenix and California.

  The Florida homesites are in first-time homebuyer, master planned, active adult and premier golf course
  communities in the Tampa, Orlando, Jacksonville and Southeast Florida markets where Miami-based Lennar
  plans to build single-family homes, townhomes and garden villas

  After winning a contested auction over two other bidders this January with a bid of $81 million, Starwood Land
  Ventures, a Bradenton-based real estate investment firm, gained approval for the purchase from a U.S.
  Bankruptcy Court late last month.




THE WATCH LIST NEWSLETTER                                                                                                 6
  "After more than a year of tremendous effort by an excellent team of employees and consultants, we are
  extremely pleased with the acquisition of the Tousa Florida assets," said Mike Moser, East Region president of
  Starwood Land Ventures. "After a tough few years in Florida's residential real estate market, the high level of
  interest we have seen in these properties from builders and our own extensive due diligence has given us a high
  degree of confidence we will see the recovery of these assets as they emerge from bankruptcy amid a stabilizing
  real estate market. This is precisely the type of value generating project we envisioned taking part in when
  Starwood Capital partnered with former homebuilding executives to form Starwood Land Ventures three years
  ago and we are looking forward to building on that vision with this acquisition."

  "We are very pleased to work with Starwood on this transaction and we view this deal as a major step forward for
  Lennar's growth in the state of Florida," said Fred Rothman, regional president for Lennar. "These new
  communities will complement our existing operations. We have great designs and floor plans in place for each of
  the communities and our team is ready to build beautiful new homes at great prices that will appeal to savvy
  buyers."

  Moser said Starwood chose Lennar as its preferred Florida homebuilder because of Lennar's proven track
  record.



                           Economy Deals Black Gaming a Bad Hand
  Black Gaming LLC, owner of three Nevada casinos, and various subsidiaries and affiliates filed for protection
  under Chapter 11 of the Bankruptcy Code.

  In a statement, Black Gaming's majority owner, Robert R. "Randy" Black, Sr. noted, "We are moving forward with
  our plans as previously outlined in the lockup agreement. As previously stated, our problem is one of leverage;
  we have more debt than our operations can support. Our agreement with our lenders is designed to resolve this
  by restructuring our debt to a level our operations can sustain and to provide additional capital."

  Black Gaming entered into a lockup agreement with the holders of 70% of the company's $125 million senior
  secured notes.

  Under the proposed plan of reorganization plan:

  The company's Senior Credit Facility with Wells Fargo Foothill Inc. will be paid in full.

  The company's senior secured noteholders will exchange their notes and claims for a new credit facility of $62.5
  million.

  The company's Senior Subordinated Noteholders will receive warrants to purchase equity interests in
  Reorganized Black Gaming in exchange for their notes and claims.
  Randy Black, Sr. and other investors will contribute $18.25 million cash in exchange 100% of the new equity
  interests in the reorganized Black Gaming.



                       Orleans Homebuilders To Seek Sale thru Ch. 11
  After failing to obtain a maturity extension its $350 million revolving credit facility with 7 banks last week, Orleans
  Homebuilders Inc. in Bensalem, PA, and 59 affiliates filed for Chapter 11 protection with the U.S. Bankruptcy
  Court in the District of Delaware.

  The company said it has reached agreement with some of its lenders for up to $40 million of debtor-in-
  possession financing, pending Court approval and syndication. The new financing consists of up to $25 million in
  cash revolving borrowing availability and up to $15 million of availability for replacement letters of credit under
  the credit facility.

  "We intend to continue to pursue a sale of the company through a negotiated sale, a plan of reorganization or
  other auction under Chapter 11," said Jeffrey P. Orleans, chairman, president and CEO. "The U.S. economy is in



THE WATCH LIST NEWSLETTER                                                                                                   7
  the worst recession since the Great Depression, consumer confidence remains weak, and national housing
  starts are at or near all-time lows. From the fiscal year 2006 to fiscal year 2009, our residential revenue
  decreased by two-thirds, from just under $1 billion to approximately $322 million."
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                 Pacific Western Bank Sells $324 Mil. of Impaired Loans
  By: Mark Heschmeyer
  Pacific Western Bank in San Diego, CA, sold 61 non-covered adversely classified loans totaling $323.6 million,
  which includes $107.6 million of nonaccrual loans, to an institutional buyer for $200.6 million in cash – or about
  62 cents on the dollar.

  Among the loans sold were $142 million backed by commercial real estate including $12.4 million on owner-
  occupied property, $32 million on retail property, $58 million on hotel property and $25.2 million on multifamily
  property.

  It also included another $100 million in commercial real estate under construction including $6.8 million for
  owner-occupied property, $8.4 million of industrial property, $32.7 million of office property, $20.7 million of
  multifamily construction and $24.1 million in retail property.

  "Removing almost $324 million of problem loans from our portfolio in a single transaction creates tremendous
  opportunity for the company," said Matt Wagner, CEO of PacWest Bancorp, the bank's parent company. "We
  remain cautious and vigilant with respect to credit, and our existing loan portfolio is subject to uncertainty and
  volatility given the fragile economic environment. Without these problem loans, however, and given the




THE WATCH LIST NEWSLETTER                                                                                              8
  significant earnings power of our company, we believe PacWest is well-positioned to grow, both organically and
  through acquisition."

  The bank holding company estimates it will take a $41 million loss on the sale after taxes.



              Mercantile Bank Revision Adds $10 Million More to Losses
  By: Mark Heschmeyer
  Mercantile Bank Corp. in Grand Rapids, MI, had to revise its fourth quarter and full year 2009 financial results
  from those announced a month ago.

  The revision arises from an additional $10 million provision for loan and lease losses due to a re-evaluation of
  the adequacy of the allowance for loan and lease losses completed in the past few weeks.

  As a result, the net loss for the fourth quarter of 2009 increased from the originally reported $26.4 million to
  $36.4 million, and the net loss for the year increased from the originally reported $42.9 million to $52.9 million.

  Mercantile Bank Corp. is the bank holding company for Mercantile Bank of Michigan, which reported year-end
  assets of $1.4 billion. It reported $36.7 million of nonresidential property loans in nonaccrual status and $4.3 in
  multifamily assets. Its foreclosed real estate totals included $17.5 million of nonresidential income-producing
  property.



      Heritage Commerce, Mercantile Bancorp Required To Preserve, Raise
                                    Cash
  By: Mark Heschmeyer
  Heritage Commerce Corp. and its wholly owned subsidiary, Heritage Bank of Commerce in San Jose, CA,
  entered into a written agreement with the Federal Reserve Bank of San Francisco as follow-up to a recently
  concluded examination of the company and the bank.

  The written agreement requires the bank and holding company to enhance credit risk and administration
  functions, maintain adequate allocations for loan and lease losses, improve earnings and the bank's liquidity
  position and funds management practices. The written agreement also restricts the payment of dividends or any
  reduction in capital without the prior approval.

  Heritage Commerce reported a fourth quarter 2009 net loss of $574,000, which included a $5.7 million provision
  for loan losses.

  Nonperforming assets were $64.6 million, or 4.74% of total assets as of Dec. 31, compared to $58.2 million as of
  Sept. 30. Land and construction loans were 52% of nonperforming assets, commercial and industrial loans were
  21%, commercial real estate loans were 15%, SBA loans were 8% and other real estate owned was 4%. Total
  OREO was $2.2 million. In the fourth quarter, the bank sold three OREO properties for a net loss of $137,000.

  Total assets remained flat at $1.36 billion as of year-end.

  "In 2009, we had significant success in reducing our land and construction loan portfolio, reducing it by $78.7
  million, or 29%," said Walter T. Kaczmarek, president and CEO.

  Separately, Mercantile Bancorp Inc., a $1.2 billion, Quincy, IL-based bank holding company with community
  banks in Illinois, Kansas and Florida, entered into a written with the Federal Reserve Bank of St. Louis.

  Under the terms of that agreement, the company is required to provide its subsidiary banks with financial and
  managerial resources, submit a capital plan and provide periodic performance updates. In addition, the company
  and its banks are prohibited from paying dividends or reducing capital without the prior written approval.




THE WATCH LIST NEWSLETTER                                                                                               9
  Mercantile Bancorp this week sold off its Brown County State Bank and Marine Bank & Trust to United
  Community Bancorp Inc., of Chatham, IL, for approximately $25.8 million. The proceeds of the sale will be used
  to strengthen its capital position and strategically reduce its outstanding debt obligations.

  "In this current regulatory climate, the focus has been upon banks significantly improving capital and liquidity to
  protect themselves and their customers from the stresses of the economic environment we have found ourselves
  in these past two years," said Ted T. Awerkamp, president and CEO. "As with many community banks across
  the country, we have been working with our various state and federal regulatory agencies to meet or exceed
  their specific directives and expectations, and we will continue to do so."



                               Regulators Close Rainier Pacific Bank
  By: Mark Heschmeyer
  The Washington Department of Financial Institutions closed Rainier Pacific Bank in Tacoma, WA, and appointed
  the FDIC as receiver.

  The FDIC then entered into a purchase and assumption agreement with Umpqua Bank in Roseburg, OR, to
  assume all of the deposits and 14 branches of Rainier Pacific Bank. As of Dec. 31, Rainier Pacific Bank had
  approximately $717.8 million in total assets and $446.2 million in total deposits.

  In addition to assuming all of the deposits, Umpqua Bank agreed to purchase approximately $670.1 million of the
  failed bank's assets. The FDIC will retain the remaining assets for later disposition. The FDIC and Umpqua Bank
  entered into a loss-share transaction on $578.1 million of Rainier Pacific Bank's assets.

  Almost all of Rainier's distressed assets were related to residential real estate.

  Umpqua Bank participated in a competitive bid process with the FDIC. The accepted bid included a 1.04%
  deposit premium on non-brokered deposits, and a negative bid of $13.1 million on assets acquired.



                                  2010 To See Fewer Store Closures
  By: Sasha M. Pardy
  With the International Council of Shopping Centers' latest semi-annual store closing statistics report came news
  that 2009 did not bring the retail industry the huge wave of store closures that many had anticipated.

  "There has been a big drop-off in announced closures by the national chains," said Suzanne Mulvey, retail real
  estate strategist for PPR, a CoStar Group subsidiary. "While the realities of the decline in retail sales precipitated
  the massive volume of closures since 2007, the pressures of being a public company shaped the timing of these
  announcements - under the cover of a historic recession (and with stock prices already down) retail execs piled
  on the bad news - it's the classic "big bath" theory. This is why the announcements were loaded in 2008."

  During 2009, national retail chains announced the closure of 4,763 stores, said ICSC. Not only is this figure far
  less than the 6,913 store closures announced during 2008 (31% less to be exact); but it is more in line with the
  level of store closures recorded in the pre-recession years of 2005, 2006 and 2007. The figure is only based on
  store closing announcements made by national retail chains and does not reflect the actual number of stores
  closed by all retailers across the nation each year. Because ICSC has been tracking these major store closings
  announcements via the same methodology since 2001, however, the data is sufficient to establish a trend.

  Retailers have not only been closing stores, they've also been opening them too. According to ICSC estimates,
  112,000 new retail establishments opened their doors during 2008, making for a total net loss of 31,000 stores
  that year. If we assume that actual new store openings will ring in at about 30% less than 2008 -- a rational
  hypothesis considering retailers' significant pullback in new store openings during the recession -- than we could
  estimate that about 77,200 stores opened during 2009. If such activity proves to be true, we could estimate a
  total net loss of approximately 21,359 stores during 2009 -- such a figure would be more in line with numbers
  coming out of the last recession, which were subsequently followed with significantly less net closure activity.




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  ICSC has yet to release a forecast regarding its expectations for how many store closures we should expect in
  2010. By CoStar's count; major retailers have already announced at least 1,144 store closures this year, creating
  additional retail space availability of approximately 10.3 million square feet.

  Mulvey of PPR expects that the tally of 2010 store closing announcements will come in below 2009 and in
  addition, expects the net change in the number of stores to be more favorable as retailers warm to opening new
  stores.

  "The outlook for 2010 is for retail sales to firm, with stronger growth expected in 2011. At the macro level, this
  portends well for new store openings. At the tenant level, store openings in 2010 will be driven by balance sheet
  decisions - healthier balance sheets will allow for retailers to seize an historic opportunity to take market share
  through new expansions. To the winner goes the spoils. And there is clear evidence that this is already
  happening - stronger (and likely leaner) retailers are posting impressive same-store sales growth and it is from
  this group of retailers that expansion announcements are originating," Mulvey explained.

  The following is a list of some major store closure announcements we've tracked so far this year.
           Sears / Kmart 21 stores
           Movie Gallery / Hollywood Video: 805+ stores
           Jones Apparel: 166 stores
           Crabtree & Evelyn: 35 stores
           Disney Stores: 24 stores
           Uno Restaurants: 18 restaurants
           Snyder's Drugs: 16 stores
           Albertson's: 11 stores and
           Sam's Club: 10 stores.



                   Blockbuster Shuttering Up to 545 Stores During 2010
  By: Sasha M. Pardy
  Keeping with the ongoing contraction of the traditional movie rental retail business, Blockbuster Inc. said it would
  close 500 to 545 of its company-owned U.S. retail stores during 2010. To date, the retailer has already closed
  253 of these stores and said 150 more will close by the end of April, with the remainder shuttering throughout the
  rest of the year. Over the last three years the company has closed 983 of its U.S. stores, comprised of 374
  closures in 2009, 270 in 2008 and 339 in 2007. Blockbuster currently operates 3,525 U.S. movie rental stores.

  The average Blockbuster store is 5,500 square feet, with the typical range between 4,000 and 8,000 square feet.
  From this, we can estimate the 545 store closures planned for 2010 could create another 3 million square feet of
  vacant retail space for the already-challenged retail real estate market in 2010. Most Blockbuster stores serve as
  junior anchor tenants in outparcel or corner in-line locations for grocery-anchored neighborhood and community
  shopping centers. Plus, keep in mind that Blockbuster's long-term plan is to have a smaller overall store base
  with fewer large stores and more small, urban stores; so it is most likely closing more of its large stores than
  small stores -- the retailer's "smaller" store format is about 3,000 square feet.

  The retailer continues to make efforts to compete in the technologically-evolving movie rental business, however.
  During 2010, it plans to broaden its alliance with NCR to open 7,000 Blockbuster Express kiosks, more than
  doubling the division's current size of 3,000 units. The Express kiosks are designed to compete directly with the
  likes of RedBox; which has a much stronger foothold in the marketplace with its more than 19,000 existing kiosks
  -- RedBox added at least 7,000 new kiosks during 2009.

  Blockbuster's primary retail competitor, Movie Gallery, has been closing plenty of stores as well. The retailer,
  which filed bankruptcy for the second time in February 2010 following the closure of more than 700 stores since
  its May 2008 emergence from its first bankruptcy, currently operates 2,600 stores under banners Movie Gallery,
  Hollywood Video and Game Crazy -- but it is closing at least 800 of these stores as part of its reorganization
  efforts.




THE WATCH LIST NEWSLETTER                                                                                                11
                                  Hummer: Stalling Out for Good?
  By: Andrew Deichler
  Last week, General Motors said that it was unable to complete a deal with Chinese road equipment company
  Sichuan Tengzhong Heavy Industrial Machines Co. to sell its ailing Hummer line. As a result, the wind-down of
  production for America's most famous "gas guzzler" now looms, possibly costing about 3,000 employees their
  jobs.

  Tengzhong was unable to gain the support of Chinese government, which has been making an effort to promote
  fuel-efficient vehicles. Tengzhong was also unable to obtain financing for the $150 million acquisition from
  Chinese banks, The New York Times reported.

  "One year ago, General Motors announced that we were going to divest Hummer, as part of focusing our efforts
  on Chevrolet, Buick, GMC and Cadillac going forward," said John F. Smith, vice president of corporate planning
  and alliances at GM. "We have since considered a number of possibilities for Hummer along the way, and we
  are disappointed that the deal with Tengzhong could not be completed."

  Among the probable closures is the GM plant in Shreveport, LA, which produces the Hummer H3. However, that
  facility also produces Chevy and GMC vehicles, so it is possible that jobs could be retained. But the fact that the
  factory was already scheduled to close in 2012 doesn't bode well.

  Another likely casualty is the Hummer H2 Assembly Plant in Mishawaka, IN. Located next to government
  contractor AM General's HMMWV Assembly Plant (the plant where the civilian Hummer line was born), the
  facility totals 673,000 square feet. It has already been temporarily closed since December, while GM was
  attempting to iron out the Tengzhong deal.

  Fortunately, AM General, not GM, produces the vehicles at the Mishawaka plant. Thus, there is a possibility that
  some workers could transition over to the contractor's neighboring facility, building military vehicles. But AM
  General is also in jeopardy, as the government moves closer to replacing the Humvee.

  Additionally, employees at Hummer and GM dealerships across the nation are in limbo.

  On Tuesday, GM reported a 32% increase in February for its four core brands, Chevrolet, Cadillac, Buick and
  GMC, compared to the same month last year. The surge was driven by consumer interest in GM's new line of
  crossovers and passenger cars.

  These positive results were a sharp contrast to Hummer's sales, which continue to plummet as Americans are
  moving towards more fuel-efficient vehicles.

  But there is still hope for Hummer, as a similar wind-down announcement was also made for Saab at the end of
  last year. GM had been attempting to sell the Swedish car company until negotiations with a potential buyer,
  Spyker Cars, fell through. But Spyker came back with another offer, and two sides worked out a deal that finally
  closed last week.



                                        Local Closures & Layoffs
                                                                        Closure
                                                                        or         #
   Company                    Address                                   Layoff     Affected             Impact Date
   MTA New York City
   Transit                    2 Broadway, New York, NY                  layoff           620                 5/7/2010
   General Linen Supply &
   Laundry                    835 Mytle Ave, Brooklyn, NY               closure          258                 6/1/2010
   Pinnacle Food Group        90 Linden Oaks, Rochester, NY             closure          205                7/15/2010
   Pali Capital               650 5th Ave, New York, NY                 closure          145              immediately
   Sheraton Hotels of New
   York                       790 7th Ave & 51st St, New York, NY       layoff            42                5/15/2010
   Estee Lauder               Oakland, NJ                               layoff            77                 4/2/2010



THE WATCH LIST NEWSLETTER                                                                                               12
                                                                              Closure
                                                                              or         #
   Company                    Address                                         Layoff     Affected               Impact Date
   Pacific Coast Feather      1560 Joel Dr, Lebanon, PA                       layoff           130                  4/30/2010
   Girard Medical Center
   Continuing Care            8th St & Girard Ave, Philadelphia, PA           layoff           100                  4/24/2010
   Ceratizit USA              5369 Rte 982 N, Latrobe, PA                     layoff            69                  4/25/2010
   Universal Music Group      9999 E 121st St, Fishers, IN                    layoff            34                   5/9/2010
   Siemens Healthcare         5210 Pacific Concourse Dr, Los Angeles,
   Diagnostics                CA                                              layoff           128      3/31/2010 - 12/31/2010
   Unilever Supply Chain      19161 E Walnut Dr, City of Industry, CA         closure           61                   6/30/2010
   Ralph's Grocery            1500 Eastridge Ave, Riverside, CA               layoff           417                    4/7/2010
                              4841 San Fernando Rd W, Los Angeles,
   Ralph's Grocery            CA                                              layoff           245                     4/7/2010
   Hayden Automotive
   Manufacturing              1241 Old Temescal #101, Corona, CA              layoff               73     4/1/2010 - 10/1/2010
   Lifesparc                  1871 Airway Dr, Hollister, CA                   closure              75    3/31/2010 - 5/31/2010
   Amtex                      550 Carnegie St, Manteca, CA                    closure              97    3/31/2010 - 6/15/2010
   Artex Aircraft Supplies    14405 Kiel Rd, Aurora, OR                       closure              68    4/30/2010 - 6/30/2010
   La Corsha Hospitality
   Group                      St. Anthony Hotel, San Antonio, TX              layoff           112                immediately
   Milwaukee Forge            1532 E Oklahoma Ave, Milwaukee, WI              closure          107                  4/19/2010
   Morningstar                920 Sextonville Rd, Richland Center, WI         layoff            57        2/22/2010-4/23/2010




                                              Lease Cancellations
  Capmark Financial Group is rejecting more leases in connection with its October bankruptcy filing. The most
  significant cancellation is at 48 Wall St in Manhattan, where Capmark leases four floors, a total of 51,250 square
  feet. The commercial real estate finance company is also terminating contracts for three office spaces that it is
  currently leasing out to subtenants, as well as the leases of a small office space in Utah and a suite at Lincoln
  Financial Field, home of the Philadelphia Eagles. Capmark has deemed the leases as unprofitable and
  unnecessary as it continues to restructure.

  Sonix Medical Resources, which also filed for bankruptcy in October, is rejecting a pair of month-to month
  leases that it considers to be burdens on its business. The Long Island-based provider of diagnostic medical
  imaging vacated both properties on Dec. 31, 2009. Sonix has also requested an extension of time to assume or
  reject the lease of its corporate headquarters in Hauppauge, NY, as well as the leases of six diagnostic centers
  in New York and New Jersey that it provides to various radiology practices under turn-key license agreements.

   Company               Address                             Affected Parties                       Comment
                                                                                                    51,250 SF, dated
   Capmark Financial     48 Wall St, Flrs 14, 15, 16 & 17,                                          10/11/2000, terminated
   Group                 New York, NY                        48 Wall, LLC                           2/28/2010
                                                                                                    12,770 SF, dated
   Capmark Financial     6955 Union Park Center, Ste                                                7/13/2001, terminated
   Group                 450, Midvale, UT                    Washington Capital Management          1/31/2010
                                                             Brandywine Realty Trust (landlord),
   Capmark Financial     15 Campus Blvd, Ste 100,            Executive Health Resources             16,551 SF, dated
   Group                 Newton Square, PA                   (subtenant)                            12/22/2004
   Capmark Financial     120 Gibraltar Rd, Ste 215,          Liberty Property Trust (landlord),     4,307 SF, dated
   Group                 Horsham, PA                         Witmer Partners LLC (subtenant)        10/24/2006
   Capmark Financial     44 Montgomery St, Ste 2450,         OTR (landlord), MMA Financial,
   Group                 San Francisco, CA                   Inc. (subtenant)                       6,228 SF, dated 7/1/2003
                         Lincoln Financial Field (Eagles
   Capmark Financial     Stadium), Ste 2010,
   Group                 Philadelphia, PA                    Eagles Stadium Operator LLC            dated 9/25/2003
   Sonix Medical         2500-15 Nesconsett Hwy,                                                    13,704 SF, terminated
   Resources             Stony Brook, NY                     Bonvi Realty, Inc.                     12/31/2009




THE WATCH LIST NEWSLETTER                                                                                                         13
   Company                 Address                            Affected Parties                       Comment
   Sonix Medical           163-03 Horace Harding Expy,
   Resources               Fresh Meadows, NY                  Banle Associates                       terminated 12/31/2009
   Sonix Medical                                                                                     corporate headquarters,
   Resources               150 Motor Pky, Hauppage, NY        RXR Realty                             5,000 SF
   Sonix Medical           455-459 Jack Martin Blvd,          Kinetic Diagnostic Center              licensed to radiology
   Resources               Brick, NJ                          Associates                             practice
   Sonix Medical                                                                                     licensed to radiology
   Resources               848 49th St, Brooklyn, NY          Teicher Enterprises                    practice
   Sonix Medical           17 White Horse Pike, Haddon                                               licensed to radiology
   Resources               Heights, NJ                        Medical Heights Associates             practice
   Sonix Medical           4277-4040 Hempstead Tpke,          Bethpage Professional Center,          licensed to radiology
   Resources               Bethpage, NY                       Alpaso Inc., Public Storage            practice
   Sonix Medical           19 Mule Rd & 1565 Rte 37 W,        CSS Associates LLC, Route 37           licensed to radiology
   Resources               Toms River, NJ                     Associates LLC                         practice
   Sonix Medical                                                                                     licensed to radiology
   Resources               97 Main St, Chatham, NJ            Hickory Tree Properties LLC            practice

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                                                   Loan Maturities
  The following is a weekly feature from CoStar Group of debt on commercial real estate properties that approaching their loan
  maturity date. The information is a valuable source of leads on potential refinancing or property sale or servicing
  opportunities. The information for these listings comes from collateral and loan information filed with securities regulators.

                                                Current         Note
   Property                                     Bal.            Rate        Mat. Date       Amortization    Borrower
   35 Pinelawn Road, Melville, NY               $15,189,000       5.20%     Sept. 2010      interest only   RNY Property Trust
   150 Motor Parkway, Hauppauge, NY             $24,080,000       5.20%     Sept. 2010      interest only   RNY Property Trust
   660 White Plains Road, Tarrytown, NY         $37,657,000       5.20%     Sept. 2010      interest only   RNY Property Trust
   100 Executive Drive, West Orange, NJ         $12,115,000       5.20%     Sept. 2010      interest only   RNY Property Trust
   100 Grasslands Road, Elmsford, NY             $6,027,000       5.20%     Sept. 2010      interest only   RNY Property Trust
   80 Grasslands Road, Elmsford, NY             $10,672,000       5.20%     Sept. 2010      interest only   RNY Property Trust
   200 Executive Drive, West Orange, NJ         $12,981,000       5.20%     Sept. 2010      interest only   RNY Property Trust



THE WATCH LIST NEWSLETTER                                                                                                          14
                                                Current        Note
   Property                                     Bal.           Rate         Mat. Date      Amortization    Borrower
   492 River Road, Nutley, NJ                   $22,073,000      5.20%      Sept. 2010     interest only   RNY Property Trust
   225 Highridge Road, Stamford, CT             $55,274,000      5.20%      Sept. 2010     interest only   RNY Property Trust
   520 Broadhollow Road, Melville, NY           $11,869,000      5.20%      Oct. 2010      interest only   RNY Property Trust
   1660 Walt Whitman Road, Melville, NY         $11,386,000      5.20%      Oct. 2010      interest only   RNY Property Trust
   50 Marcus Drive, Melville, NY                $28,278,000      5.20%      Oct. 2010      interest only   RNY Property Trust

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                              Watch List: Largest REO Loan Properties
  The following is a weekly feature from CoStar Group of properties affected by worsening financial or property conditions,
  borrower issues, or tenant issues. The information is a valuable source of leads on potential refinancing or property sale or
  servicing opportunities. The information for these listings was provided by Investcap Advisors LLC, an industry leader in
  providing surveillance data on loan and commercial real estate performance underlying the Commercial Mortgage Backed
  Securities (CMBS) market.

                                                            CMBS; Master
                                            Property        Servicer; Special
   Property          Address                Type, Size      Servicer                 Comment
   Washington                                               GE 2005-C1; Wells        REO as of 9/17/09. CB Richard Ellis took
   Mutual            9401 Oakdale Ave.,     Office,         Fargo Bank; LNR          over the management and leasing on
   Buildings         Los Angeles, CA        97,336          Partners                 behalf of the trust.
   Washington                                               GE 2005-C1; Wells        REO as of 9/17/09. CB Richard Ellis took
   Mutual            19850 Plummer St.,     Office,         Fargo Bank; LNR          over the management and leasing on
   Buildings         Chatsworth, CA         257,336         Partners                 behalf of the trust.




THE WATCH LIST NEWSLETTER                                                                                                         15
                   12510 & 12601 S.                        LBUBS 2004-C8;
                   Green Drive,            Multifamily,    Wachovia Bank; LNR   REO as of 3/3/09. Greystar hired as
   Laurel Creek    Houston, TX             696             Partners             management company.
                   10750 Westbrae                          LBUBS 2004-C8;
   Westbrae        Parkway, Houston,       Multifamily,    Wachovia Bank; LNR   REO as of 3/3/09. Greystar hired as
   Apartments      TX                      288             Partners             management company.
                                                           LBUBS 2004-C8;
                   15615 Blue Ash          Multifamily,    Wachovia Bank; LNR   REO as of 3/3/09. Greystar hired as
   Crystal Cove    Drive, Houston, TX      167             Partners             management company.
                   7003 Concouse                           LBUBS 2004-C8;       REO as of 6/29/09. NAI Brannen
   Douglasville    Parkway,                Retail,         Wachovia Bank; LNR   Goddard is the property manager and
   Crossroads      Douglasville, GA        42,660          Partners             leasing agent.
                   1133 East-West                          LBUBS 2004-C8;       REO as of 6/29/09. NAI Brannen
   East-West       Connector, Austell,     Retail,         Wachovia Bank; LNR   Goddard is the property manager and
   Crossroads      GA                      29,164          Partners             leasing agent.
                   2010-2024 Sam                           LBUBS 2004-C8;
   Lake Wales      Walton Way, Lake        Retail,         Wachovia Bank; LNR   REO as of 10/28/2009. Grubb & Ellis
   Corners         Wales, FL               14,625          Partners             engaged as property manager.
                   1128 Industrial                         LBUBS 2004-C8;       REO as of 6/29/09. NAI Brannen
   Mcdonough       Blvd., Mcdonough,       Retail,         Wachovia Bank; LNR   Goddard is the property manager and
   Corners         GA                      16,800          Partners             leasing agent.
                   3812 Liberty                            LBUBS 2004-C8;
   Northtowne      Highway, Anderson,      Retail,         Wachovia Bank; LNR   REO as of 6/29/09. Grubb & Ellis
   Corners         SC                      14,250          Partners             engaged as property manager.
                   2311 & 2315 W.                          LBUBS 2004-C8;
   Redbud-         Kenosha, Broken                         Wachovia Bank; LNR   REO as of 10/28/2009. Grubb & Ellis
   Broken Arrow    Arrow, OK               Retail, 6,600   Partners             engaged as property manager.
                                                           LBUBS 2004-C8;
   Sand Lake       1411 Sand Lake                          Wachovia Bank; LNR   REO as 9/309. Grubb & Ellis engaged as
   Corners         Road, Orlando, FL       Retail, 9,375   Partners             property manager.
                   1919-1931 U.S.                          LBUBS 2004-C8;
   Sebastian       Highway 1,              Retail,         Wachovia Bank; LNR   REO as of 10/28/2009. Grubb & Ellis
   Corners         Sebastian, FL           17,900          Partners             engaged as property manager.
                                                           LBUBS 2004-C8;
   Seguin          490 S. 123 Bypass,      Retail,         Wachovia Bank; LNR   REO as of 4/7/09. Corporate Realty is the
   Corners         Seguin, TX              21,542          Partners             management company.
                   5501 Highway 6                          LBUBS 2004-C8;
                   South, Missouri City,   Retail,         Wachovia Bank; LNR   REO as of 6/2/09. Corporate Realty is the
   The Corners     TX                      42,490          Partners             management company.
                                                           LBUBS 2004-C8;
                   464019 State Road       Retail,         Wachovia Bank; LNR   REO as 10/28/09. Grubb & Ellis engaged
   Yulee Corners   200, Yulee, FL          10,000          Partners             as property manager.
   Richardson      100 South Central                       CSFB 2007-C3;        REO as of 6/2/09. The Woodmont Co.
   Heights         Expressway,             Retail,         Wachovia Bank; LNR   was hired as property manager and
   Village         Richardson, TX          156,400         Partners             leasing agent.
                                                           CSFB 2007-C3;
   Coconut         4-484 Kuhio             Retail,         Wachovia Bank; LNR   REO as of 6/29/09. CB Richard Ellis was
   Marketplace     Highway, Kappa, HI      66,185          Partners             hired as management and leasing agent.
                                                           BALL 2004-BBA4;
                   200 Westgate Drive,     Retail,         Bank of America;
   Westgate Mall   Brockton, MA            480,348         Bank of America      REO as of 12/18/09.
                   2414 North                              BACM 2003-2; Bank
   Regal Parc      Macarthur Blvd.,        Multifamily,    of America; ORIX     REO as of 1/6/09. OCM/Greystar is
   Apartments      Irving, TX              560             Capital Markets      managing the property.
                                                                                REO as of 5/12/09. Farbman has been
                                                                                hired to manage the property. RFPs out
                                                                                to Signature Associates and Farbman for
   ABB Flexible                                            MSDWC 2001-          the leasing and listing services. It was
   Automation      1250 Brown Road,        Industrial,     TOP1; Wells Fargo    expected to be in the market for sale by
   Building        Auburn Hills, MI        529,500         Bank; Berkadia       1/31/10.




THE WATCH LIST NEWSLETTER                                                                                                   16
   Courtyard By                                        LBUBS 2001-C2;
   Marriott -                                          Wachovia Bank; CW
   Downtown        175 Piedmont Ave.    Lodging,       Capital Asset
   Atlanta         NE, Altanta, GA      211            Management             REO as of 7/5/05.
                                                       BACM 2000-2;
                                                       KeyCorp Real Estate
   SCI-1401 Elm    1401 Elm St.,        Office,        Capital Markets; LNR   REO as of 4/7/09. CB Richard Ellis took
   Street          Dallas, TX           428,884        Partners               over property management and leasing.
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THE WATCH LIST NEWSLETTER                                                                                               17

								
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