Fate of prominent o ce buildings uncertain as hefty loans come due

If there is one asset class that has truly been left in ux during the COVID-19 pandemic, it’s o ce space.

And among the bevy of things to observe is how maturing commercial mortgage-backed securities loans on those properties shake out. at’s because as those loans come due, building owners may look to re nance their debt, or face default and foreclosure by the lender, which could take them back to sell them and recoup some of their money. Owners could also look to unload the property in advance of the maturity, or the borrower and lender could also work out loan extensions, putting o when the balance is due.

Overall, things are much more difcult today than when those loans were issued. Between rising interest rates and a tough o ce environment, among other issues, the ultimate future of these spaces is up in the air.

New York City-based Trepp LLC, which tracks CMBS data, says this year there are 11 CMBS o ce loans in the Detroit market maturing with a current loan balance of approximately $100 million (original balances of $131.4 million).

More than half of that is for the Grace Lake Corporate Center in Van Buren Township, with $53 million still owed on a $75.5 million loan that matures in April. at property, the former Visteon Corp. headquarters, is owned by New York City-based Sovereign Partners LLC, which paid $81.1 million for it in 2012. I emailed Darius Sakhai, co-founder and principal of Sovereign Partners, seeking details on the company’s plans for the debt.

But the overall amount due next year in the region dwarfs this year, Trepp data shows. In 2024, there are 13 loans on a dozen properties with current balances of $288.3 million due; the original loan balances totaled $323.3 million.

e vast majority secure some of the most well-known o ce properties in the suburbs.

South eld Town Center, which had been close to selling before a deal collapsed last year due tonancing, has a pair of loans totaling

$142 million due next year. e current balances are $128.7 million. e property, the region’s second-largest o ce complex, is owned by New York City-based 601W Cos., which paid $177.5 million for it in 2014.

One Towne Square and Two Towne Square in South eld, both owned by South eld-based Redico LLC, have $31.5 million outstanding on a $36 million loan and $12.7 million on a $15 million loan, respectively, according to Trepp.

In addition, the Redico-owned American Center at 27777 Franklin Road has a balance of $26 million on a $29 million loan due next year.

I emailed Dale Watchowski, president, CEO and COO of Redico, about the loans and what the company’s plans are for them.

And the Bank of America Building on West Big Beaver Road in Troy has $44.3 million owed on a $47.6 million loan due in September 2024, according to Trepp. Sol Gutman of New York City paid $74 million for the property in 2017.

What ends up happening with all those major suburban properties and their debt is an open-ended question. Trepp says all those borrowers are current on their loan payments.

“ ere is a signi cant amount of CMBS and life (insurance) company o ce loans rolling over in the next few years, but it is still too early to fully predict the impact on these investments,” said Joshua Bernard, principal of South eld-based Bernard Financial Group.

Several issues are at play now complicating how things will play out, Bernard said. For example, in Detroit’s central business district, major employers, such as General Motors Co., are beginning their return to the o ce — at least in a hybrid mode.

“We still need to see what this does to marginal true desk occupancy and rental rates for co-located, ancillary and/or related other tenants in the market,” Bernard said. “ is impacts retail, parking, and street-level businesses in the CBD, too.” at could make things tough for those looking to re nance — something that started playing out last year. is is just one of the issues to keep tabs on in the coming months.

Additional complicating factors: Rising interest rates and the overall state of the o ce sector, which has generally been battered as companies have trended toward hybrid work models and shedding unnecessary space, either through sublease or downsizing as leases roll over.

In general, as Trepp notes, that means some lenders have been wary to issue new o ce debt unless buildings are well-occupied with longterm tenants.

Trepp, citing Moody’s Investment Services data, says in Q2 last year commercial real estate re nancing fell 11.2 percentage points to 73.5 percent from 84.7 percent the prior quarter, the largest drop of the pandemic.

Contact: kpinho@crain.com; (313) 446-0412; @kirkpinhoCDB