Centre Square Owner Applies For Second Loan Extension As Financial Picture Darkens
The owner of one of the largest office properties in Philadelphia is seeking more time from its lender to stabilize its performance.
The joint venture of Nightingale Properties and Wafra Capital Partners that owns Centre Square is seeking a second extension on its $368M loan backed by the 1.8M SF, two-building complex at 1500 Market St., the Philadelphia Business Journal reports. Nightingale operates the buildings on behalf of the JV. Neither company responded to requests for comment.
After purchasing Centre Square from Equity Commonwealth for $328M in 2017, Nightingale and Wafra refinanced with a $388M loan provided by JPMorgan Chase in 2019, which has since been packaged into commercial mortgage-backed securities, PBJ reports. Midland Loan Services has been acting as the servicer for the loan, and KeyBank National Association has been the special servicer for Centre Square since the loan was placed on a CMBS watchlist in April 2020.
Remote work has punched a hole in the value of office properties in Philadelphia, despite the return of Comcast's office workers (for three days a week) in September. Along with Charlotte and Houston, Philly was named as a hotspot of distress for office assets in an Oct. 5 report by credit monitoring firm Trepp.
Counting the University of Pennsylvania Health System, Saul Ewing LLP, Public Health Management and Dilworth Paxson as its largest tenants, Centre Square was 69% occupied at the end of last year, when its loan was originally scheduled to mature, PBJ reports. The JV's first extension extended the maturity date to the end of this year; the loan's terms allow for a total of three extensions.
Contributing to the low occupancy have been a number of large exits, led by insurance firm Willis Towers Watson departing over 244K SF and Comcast vacating 90K SF. Radian, another insurance firm, is departing its 173K SF space in Centre Square by next April and subleasing it until the lease expires in 2024, PBJ reports. Law firm Rawle & Henderson has signed a sublease for 36K SF of Radian's footprint.
Built in 1974, Centre Square seems to be losing out in the flight to quality being experienced in office markets across the country, despite Nightingale undertaking a multimillion-dollar renovation to the lobby and common spaces since acquiring the property.
Insurance giant Chubb has agreed to occupy a build-to-suit headquarters to be developed by Parkway Corp. a few blocks northwest of Centre Square even as office occupancy in Philly reached a 10-year high in the third quarter according to CoStar data reported by the Philadelphia Inquirer.