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Big L.A. landlord Meruelo Maddux may file for bankruptcy

The company reports steep losses in the fourth quarter and says it is unable to meet its debt payments.

March 12, 2009|Roger Vincent

Meruelo Maddux Properties Inc., the largest landlord in downtown Los Angeles, on Wednesday reported steep losses in the fourth quarter and said it may file for Chapter 11 bankruptcy protection.

The company is heavily invested in industrial real estate, including large properties in the city's produce district. It also owns a handful of mixed-use projects and some residential buildings, including a 35-story apartment tower under construction on 9th Street near Staples Center.

Founder and Chairman Richard Meruelo has been a longtime advocate of downtown and is a well-known figure in the Latino community. He was the largest individual contributor to Antonio Villaraigosa's 2005 mayoral campaign, donating nearly $200,000.

Meruelo Maddux reported a loss of $85.8 million, or 98 cents a share, in the three months ending Dec. 31, compared with a loss of $2.6 million, or 3 cents, in the same period a year earlier. Revenue was up 3.7% to $6 million, mostly because of an increase in rental income from properties acquired or placed in service in the previous year.

Company representatives declined to be interviewed Wednesday but announced in a statement that it was experiencing "significant, recurring cash shortfalls" and was unable to service most of its debt.

"We have stopped making interest payments and principal on, and therefore are likely to default under . . . 26 loans totaling $226 million," the company said. It is, however, making payments on the construction loan for the 9th Street apartment tower that is slated for completion later this year.

The company is seeking loan workouts with its lenders and trying to sell properties to raise cash, it said, but few large building sales are taking place in the current market. It has also laid off employees and suspended development except for the 9th Street apartments.

Meruelo Maddux is examining "all feasible strategic alternatives," including a voluntary filing under Chapter 11, it said.

"It's a very bleak situation," said analyst Craig Silvers, president of Bricks & Mortar Capital.

"Their timing looked great when they went public in 2007, then everything fell apart on them," Silvers said. "Other companies have faced this predicament, and more will end up in the same situation as long as this recession-depression lasts."

The company's stock closed at 11 cents Wednesday on Nasdaq, down from a high of more than $10 in 2007.


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