One Of Houston's Most Recognizable Buildings Is Delinquent On Its Loan — And It Has Company Across Town
Three out of five of last month's largest new delinquent loans nationwide are for Houston properties, including a loan tied to one of the city’s most recognizable and eye-catching buildings.
The owner of TC Energy Center, a distinctive feature of Houston’s skyline, has stopped making payments on its loan, according to S&P Global, which also cited two other Houston properties atop its list of largest national delinquent loans in March.
Loans tied to TC Energy Center and One City Centre, another office building downtown, were two of the five largest newly delinquent CMBS loans nationally in March, according to S&P Global. The third Houston loan listed was for The Redford, a multifamily property that was part of a foreclosure on a $229M multifamily portfolio last month.
Starwood Property Trust is the lender for the loans on TC Energy Center, which was renamed in 2019 for the pipeline, power generation and storage company that occupies more than 300K SF within it. That lease expires in 2036, according to S&P.
The building was completed in 1983 and was formerly called the Bank of America Center. It is one of the most recognizable parts of Houston’s skyline due to its postmodern gothic architecture and dramatic gabled roofline, developed by Hines.
Its tenants include ANR Pipeline Co., which occupies 260K SF, and Mayer Brown law firm, which occupies 54K SF, according to Trepp.
TC Energy Center lost Baker & McKenzie law firm as a tenant upon its lease expiration in March. The law firm moved to the Bank of America Tower at 800 Capitol St.
M-M’s loan was first placed on a watchlist in June 2020 due to an upcoming September 2020 maturity date. That date was extended multiple times, most recently to September 2023. But the last payment was made in February and the loan was transferred to special servicer LNR Partners in March, according to Trepp data.
Last month, the special servicer commented that Starwood was working on extension documents, the latest update in the Trepp report. M-M and Starwood did not immediately respond to requests for comment.
Starwood was also the lender and M-M Properties the borrower on 5555 San Felipe, which Starwood foreclosed on and took ownership of late last year. Starwood previously floated the idea of finding a buyer to convert the 1.2M SF office building to residential.
In a Q1 2023 earnings call, Starwood President Jeff DiModica mentioned a “former office asset in Houston” for which Starwood has a signed purchase and sale agreement “at our basis for residential conversion.”
The Trepp report shows the securitized maturity balance for the TC Energy Center is $252M, the same amount Starwood listed as its second-biggest office loan in its earnings call presentation. DiMondica also mentioned a “50% LTC loan we made on an office building in Houston that we extended six months while the sponsor explores a sale or recapitalization.”
Separately, Accesso Partners defaulted on loans totaling $100M for One City Centre, a 608K SF, 29-story office building at 1021 Main St., along with two nearby parking garages, Trepp data shows.
JPMorgan is the lender for the loans that were transferred to special servicer Midland Loan Services in 2021, according to Trepp. One City Centre lost its largest tenant, Waste Management, at the end of 2020.
As of June 2022, special servicer comments show the building was down to 28% occupancy, meaning it was 72% vacant, which is emblematic of the struggling downtown Houston office market.
The Central Business District had a 28.1% vacancy rate as of Q1 2023, according to an Avison Young report. That’s higher than Houston’s overall office vacancy rate of 26.9%, which is already well above the national average of about 16.7%.
Midland is using reserve funds to cover payments and operating expense shortfalls while it determines when is the best time to put One City Centre on the market for sale, according to special servicer commentary from April.