More Banks Foreclose On High-Rise Buildings

Banks and insurance companies are foreclosing on commercial office towers with growing frequency, an indication that lenders are accelerating efforts to cut growing real estate losses.

In the latest case, a Chicago bankruptcy judge this week gave Swiss Bank Corp. the go-ahead to foreclose on three California office buildings with mortgages totaling $226 million.

The ruling came after details emerged this week of two other high-profile foreclosures.

Citicorp has begun foreclosure on a $137 million mortgage on a Chicago office building owned by Equitable Life Assurance Society of the U.S., The Wall Street Journal reported.

Earlier, Equitable began to foreclose on a $75 million mortgage held by the biggest hotel in downtown Los Angeles, the Westin Bonaventure Hotel, said Jonathan Miller, a vice president for Equitable Real Estate Investment Management Inc.

"I think we are on to a trend," said Raphael Soifer, bank analyst for Brown Brothers Harriamn & Co. "There comes a point in any situation where it may be more desirable to take title to the property and control the property yourself."

Financial troubles have hit high-rise developers in Seattle, too, although to a lesser extent than in other cities.

It's possible that Two Union Square, the 56-story, silver-banded tower at Sixth Avenue and Union Street, will be foreclosed on this fall or winter by its lender, the State Investment Board. The building's owner, One Union Square Partnership, is falling increasingly into debt on its $200 million mortgage.

The deed to another building, Pacific First Centre at Fifth Avenue and Pike Street, was turned over to the bank in lieu of foreclosure last year. But Prescott Co. developers, partners in the building, arranged financing to pay off a $180 million construction loan in December and reacquire the deed to the 44-story building.

And in December 1989, developer Martin Selig was forced to sell his 76-story Columbia Seafirst Center back to Seafirst Bank. He used the $350 million from the sale to pay off other debts.

There's little optimism in banking circles that commercial real estate will improve soon. In the construction industry, for example, only 35.7 percent of maturing loans were paid promptly last year, according to Salomon Brothers bank analyst Thomas Hanley.

About 45 percent of construction loans had to be refinanced temporarily while 12.5 percent ended in foreclosure, Hanley said in a research paper.

"Larger banks believed that this problem would worsen in the year ahead, while smaller banks anticipated some improvement," Hanley wrote.

Insurance companies, also large lenders for the commerical real estate market, are buttoning down their portfolios as real estate values slide on both the East and West coasts, industry analysts have said.

In the Swiss Bank case, U.S. Bankruptcy Judge David Coar in Chicago on Wednesday allowed the bank to begin foreclosure on three California office buildings.

The mortgages, held by units of VMS Realty Partners, totaled $226 million, said Matt Botica, a partner with Hopkins & Sutter in Chicago, which represented Swiss Bank.

The buildings - two 500,000-square-foot office buildings in Los Angeles and a 200,000-square-foot office building in San Diego - were held by four VMS partnerships, which sought bankruptcy protection last May, VMS said.

The loans went into default in 1990 and Swiss Bank "made a real effort" to negotiate repayment prior to the foreclosure proceedings.

Jerry Murray, spokesman for the Chicago-based VMS Realty Partners, said the firm would decline comment.