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$1.3B, 146-Property CMBS Loan Heads To Special Servicing

Workspace Property Trust is staring down a potential debt crisis involving over half of its portfolio.

The office building at 1500 Liberty Ridge Drive in Chesterbrook, Pennsylvania, seen in June 2022.

A $1.3B CMBS loan obtained by Workspace in 2018, backed by 146 properties totaling nearly 10M SF across four states, has been transferred to special servicing, Morningstar Credit Information & Analytics reports. The loan is scheduled to mature in July and does not have any extension options. WPT did not respond to a request for comment.

Sixty-nine of the involved properties are office and light industrial buildings that make up 40% of the portfolio's asset value, DBRS Morningstar reported when the loan was originated in 2018. The largest Philly-area building, and second-largest in the entire portfolio, is 1500 Liberty Ridge Drive in Chesterbrook, Pennsylvania. WPT's loan for the 233K SF building was worth just under $40M when it was originated, according to Securities and Exchange Commission filings.

While the special servicer did not report the reason for the loan's transfer, the portfolio's net cash flow in 2021 was 9% below what was underwritten, and 2022 was on pace to be about the same when the last available data was gathered, Morningstar reports. The portfolio was 81% occupied in 2022, down from 88.6% when the loan was originated four years earlier. The total appraised value of the portfolio was $1.6B in 2018; no corresponding number was publicized in the new report.

WPT acquired the properties now in special servicing in two portfolio sales in 2016, both from Liberty Property Trust, Morningstar reported in 2018. WPT bought 39 Pennsylvania buildings in January, then 108 properties in October.

The latter transaction was worth $969M and included 30 buildings in Pennsylvania totaling 2M SF. Liberty was acquired by Prologis in 2019 for over $12B.

WPT used nearly 65% of the loan's proceeds, or $827M, to pay off existing debt, likely incurred in its acquisitions from Liberty. Nearly $20M went to pay expenses related to WPT's aborted IPO attempt in 2017. 

At 9.9M SF, the portfolio makes up over half of the 19M SF owned by WPT, according to the privately held company's website. WPT acquired nearly all of what remains from Griffin Realty Trust in August, with Singaporean sovereign wealth fund GIC as an equity partner.

Though SEC filings for CMBS loans tied to so many buildings don't require detailed information of every property, a high-level summary shows that WPT's affected Philly-area properties are clustered around mature local submarkets Malvern and Horsham. A significant portion of WPT's Malvern properties are in the Great Valley Corporate Center campus.