Few Degrees of Separation
Here is an interesting article from Bloomberg on Gramercy Capital's failure to repay $790 million of loans secured by approximately 900 properties.  On the surface this looks like another example of the unwinding of the credit boom of the mid-2000s.  To get to the interesting part you have to dig deeper and you'll find that two non-traded REITs are directly and indirectly involved.  In April 2008, Gramercy Capital acquired American Financial Realty, which was a publicly traded REIT.  If that sounds familiar, it should because several of the former principals of American Financial Realty are now running the non-traded REIT, American Realty Capital Trust (ARCT).  The principals had left several years before Gramercy acquired American Financial Realty and were therefore not involved in the acquisition or Gramercy's current financial problems.  The 900 properites that secure the loans in default are the assets from American Financial Realty, and are similar to the properties in the ARCT, stand-along properities subject to long-term leases.

KBS REIT I (through a subsidiary), along with Goldman Sachs, Citigroup and SL Green are the lenders involved. Here is an explanation from another article:

Gramercy Capital Corp. (NYSE: GKK) today announced that the scheduled maturity of its (i) $240.5 million mortgage loan (the "Goldman Mortgage Loan"), with Goldman Sachs Mortgage Company ("GSMC"), Citicorp North America, Inc. ("Citicorp") and SL Green Realty Corp. ("SL Green," and, collectively with GSMC and Citicorp, the "Mortgage Lenders"), and (ii) $549.7 million senior and junior mezzanine loans (the "Gramercy Realty Mezzanine Loans"), with KBS Debt Holdings, LLC ("KBS"), GSMC, Citicorp and SL Green (collectively, the "Mezzanine Lenders") has occurred without repayment by the borrowers thereunder and without an extension or restructuring of the loans by the lenders.

KBS REIT I is in a mezzanine position.  KBS REIT I made a filing last week on this debt that I am trying to understand, and it may be a subject of a future post.

I just found it interesting that the commercial real estate world can sometimes be a small place.