A Morgan Stanley deal in Cleveland saw these brilliant moves:
New York investor group City View Center LLC bought much of the property in 2006 from developer John McGill. The investors secured an $81 million mortgage loan from Morgan Stanley Mortgage Capital Inc. The loan later became part of a commercial-mortgage-backed security, and the Bank of New York Trust became the bondholders’ trustee.
The shopping center, Ohio’s first major commercial development built on landfills, has been dogged by environmental problems and ditched by major tenants. The EPA found explosive levels of methane in sewer basins under the center’s parking lots and polluted water leaking into storm sewers.
Meanwhile, Wal-Mart pulled out, citing concerns about the safety of its employees and customers. PetSmart followed. Crafts retailer Jo-Ann Stores already had closed due to poor sales. And Circuit City recently went belly-up. As major retailers left, the remaining tenants cried foul, pointing to broken covenants of their leases and asking to pay reduced rents.
By December, City View Center LLC was telling the Bank of New York Trust that the shopping center was not bringing in enough money to cover expenses.
Really? An explosive sewer-gas ridden mortgage backed security with many empty stores? Concerns about safety of employees and customers? Oh really – who would have seen that coming?
The New York investors planned to shut it down, according to court documents. On Jan. 28, the investors said they would not pay their real estate taxes.
That’s not all. An official with the Summit County Port Authority, which issued $2.75 million in tax-exempt bonds for the project, could not be reached for comment.
OK – let me get this right. Built on a garbage dump, not in the best part of town, and $81 million from Morgan Stanley? This is another case of selling securities that Wall Street was buying while not doing any due diligence. Let me remind Morgan Stanley that due diligence is “a term used for a number of concepts involving either the performance of an investigation of a business or person, or the performance of an act with a certain standard of care…”