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A trio of troubled tenants at a swanky Chelsea office building are causing problems for a nationwide commercial portfolio tied to a $1.7B loan.
Moody’s has downgraded two classes of the CMBS trust that owns the loan backing Columbia Property Trust's seven-building, 2.7M SF office portfolio on which it defaulted earlier this year. In its rating action, Moody's Investors Service wrote that the value of the buildings has deteriorated due to rent collection issues.
The biggest problem facing the loan is 245-249 West 17th St., where X, formerly Twitter, hasn’t paid rent since Elon Musk purchased the company for $44B last October, Crain’s New York Business reported. The social media platform occupies 76% of the property and makes up 12.2% of the broader portfolio's base rent.
First Republic Bank, which failed in May, also had a lease in the Chelsea building, and that space has gone dark, Crain's reported.
The 281K SF property, which spans two interconnected buildings, was constructed in 1909 and most recently renovated in 2014, according to CPT’s website. CPT purchased 245-249 West 17th St., along with another nearby property, for $514M in 2017.
Now, Moody’s has downgraded two classes of a $485M piece of the $1.72B security, which also backs two other Manhattan properties, as well as office buildings in San Francisco, Boston and Jersey City. The portfolio is also tied to a $125M mezzanine loan, per Moody's.
WeWork, which has said it is looking to renegotiate "nearly all" of its office leases, occupies 2.2% of the portfolio's net rentable area, per Moody's. It occupies approximately 60K SF at 650 California St. in San Francisco in a lease that expires in 2029.
The credit rating agency downgraded one class of the trust from Ba3 to B2 and another from B3 to Caa2, all deep junk ratings, according to Crain's.
Moody's estimates that the net cash flow from the properties has dipped by 16%, or $81M, in the 12 months since the security was sold to institutional investors. Its estimated loan-to-value on the total debt backing the portfolio is 197%. An interest rate cap on the debt expires in December.
The B-piece of the debt is owned by Oaktree Capital, which also owns the $125M mezzanine loan, The Real Deal reported.
Oaktree fought against a June appraisal that valued the portfolio at $1.6B and is pushing for a $1.8B valuation, which the loan servicer plans to accept, TRD reported. The new valuation represents a 23% drop in the two years since the debt was securitized.
CPT and Oaktree declined to comment. The loan was last paid in April 2023 and has $10.2M of principal and interest payments outstanding, according to Moody's.
CORRECTION, SEPT. 19, 12:30 P.M. ET: WeWork is not a tenant at 245-249 West 17th St., as a previous version of this story indicated. It leases space at 650 California St. in San Francisco, also owned by Columbia Property Trust and backed by the $1.7B loan. This story has been updated.
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