Commercial-mortgage backed securities could lead to bankruptcy for JER Investors Trust

JER Investors Trust, its stock already trading at less than a dime, delivered some further sobering news to investors last week when it said in a company update and review of its business in 2010 that it may have to file for bankruptcy protection.

A publicly traded firm founded in McLean in 2004, JER Investors Trust is managed by an affiliate of JER Partners, the private commercial real estate investment management company founded by Joseph E. Robert Jr. Robert, who built a fortune in Washington real estate in the early 1990s, is executive chairman of JER Partners and chief executive and chairman of the board at JER Investors Trust.

If JER Investors Trust remains unable to make payments, the statement read, “the company may have to negotiate a settlement with such creditors, recapitalize, refinance its obligations, sell some or all of its assets at prices below current estimated fair value or seek to reorganize under Chapter 11 or liquidate under Chapter 7 of the United States Bankruptcy Code.”

The problems stem from being short on cash and defaulting on loan payments related to bets on commercial real estate, including defaults on a number of debts related to complex financial instruments and commercial mortgage-backed securities, such as interest rate swap obligations and collateralized debt obligations.

“The company’s cash receipts continue to decline as delinquencies and special servicing transfers on loans underlying its [commercial mortgage-backed securities] continue to increase,” the statement said.

The firm’s unrestricted cash balance dwindled from $1.7 million at the end of 2010 to $1.4 million on May 31 of this year and the company’s stock, which traded at over $200 a share through 2007, closed June 30 trading at $0.07.

A JER Investors Trust spokesman did not return a request for comment.

Jonathan O'Connell has covered land use and development in the Washington area for more than five years.
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