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Category ArchiveWells Fargo

Surging Economy, Lack of International Travel Could Hamper Hotel Sector

The United States economy is as robust as it’s been in decades.

The Bureau of Labor Statistics reported last week that the country added 200,000 jobs in January, which exceeded expectations and marked 88 straight months of job growth; the unemployment rate has remained steady at 4.1 percent for the last four months—its lowest level in 17 years; average hourly wages for private sector workers climbed 2.9 percent on the year—the strongest year-over-year shift since June 2009—and 0.2 percent from the previous month.

Historically, a strong economy has spurred strong travel and tourism numbers that boost the hospitality real estate sector—led by domestic travel and buoyed by international travel, which has been a mainstay export for the U.S. for years.

For the last two years, however, the trajectory of international travel has dipped significantly, and the U.S.’ current economic standing, coupled with its turbulent political environment, has some hospitality industry professionals and economists noticing some fractures that could negatively impact the sector.

“International tourism is definitely down,” said Chris Muoio, a senior quantitative strategist at real estate research firm Ten-X. “It’s affecting select, gateway markets disproportionately, and it’s really coming at a time when these markets have seen large expansions in supply. It’s not drastic right now, but it’s definitely having an effect.”

The U.S.’s total market share of long-haul travel fell to 11.9 percent last year, down from 12.9 percent in 2016 and from 13.6 percent in 2015, according to the U.S. Travel Association. The U.S. was joined only by Turkey—a country currently in political turmoil, having faced a military coup on July 15, 2016—as the only two countries out of the world’s top 12 destinations to have seen a significant drop in inbound international travel over the last two years—Turkey (6.7 percent) and the U.S. (6 percent). In comparison, Saudi Arabia saw its arrivals climb 20.3 percent from 2015 to 2017.

Nine of the U.S.’s top 10 source countries for international arrivals reported significant declines from 2015 to 2017—the only country whose travelers didn’t soften on the U.S. as a vacation destination was South Korea, which reported no change, according to data from the travel association. Had the U.S. maintained its market share of visitors, the hospitality sector would have had $32.3 billion in additional spending and 100,000 more jobs. In a separate report from the Commerce Department in early January, traveler spending fell 3.3 percent in 2017—through November 2017—equating to $4.6 billion in losses and 40,000 lost jobs.

“I think the damage is done,” Muoio said. “Even if the White House softens and changes its message, I think international travel sees right through it. As long as this administration is in place, I think there’s going to be a tepid, cooler response toward traveling to the U.S. It’s just become a less desirable destination based off the rhetoric and attitude that’s been put out there.”

Muoio added, “I don’t see tourism rebounding significantly unless [the U.S. dollar depreciates against other currencies]. It would honestly depend on whether [President Donald Trump] gets a second term. Four years of this attitude isn’t lasting, whereas a decade is more lasting. It’s definitely having a chilling effect on hospitality.”

Despite the losses in international travel, the hotel sector has remained steady for some time. Average daily room rates (ADR) have hit an all-time high—although it’s slowed considerably since 2014, according to data from research firm STR.

Revenue growth declined year-over-year in the first quarter of 2017 for the first time since 2010—although it was a small drop—caused by a slight dip in demand, stagnant occupancy levels and continued increases in hotel room supply across the U.S., according to an August 2017 report from Wells Fargo. Occupancy levels at a national level have been flat since 2014, hovering around 65 percent, and supply growth dipped, but the number of rooms still reached a record-high level in the second quarter of 2017, according to data from STR.

“In the last handful of months, we’ve signed up or executed on a few billion dollars in hotel deals,” said Dustin Stolly, the vice chair and co-head of Newmark Knight Frank’s debt and structured finance group for the New York tri-state region. “We’re seeing significant interest in financing hotel assets at all levels of the cycle, from fixed-rate assets that have stabilized cash flow to assets that have come out of renovations where lenders have gauged forward projections. Investors are definitely starting to look at hotels and be more active.”

In June 2017, STR reported it expected supply to outpace demand by 3 basis points on the year—3 to 2.7 percent—which could drive down room rates and create a cash flow issue should there be an economic downturn. Mike Barnello, the president and CEO of Bethesda, Maryland-based LaSalle Hotel Properties, told Commercial Real Estate Direct in June 2017, “When we get to this part of the cycle and we see the supply move up and continue to ramp and demand soften, that’s when we get more and more concerned.”

Demand from leisure travelers—heavily domestic—who book individually has climbed 37 percent while group bookings have seen tepid growth at 2 percent, according to a September 2017 U.S. lodging industry overview report from Cushman & Wakefield.

“Things are great right now, but back-to-back [down years for international travel] creates a concern that can be turned around,” said Chip Rogers, the CEO of the Asian American Hotel Owners Association. “We have a president who’s a hotelier. He could spread a message that America is open for business. International travel is the best and cleanest export that we have and creates and sustains many, many jobs in the U.S. If the message is the U.S. is the greatest place to visit, we would be very happy.”

That is exactly what Trump tried to say in front of a crowd of about 1,600 at the World Economic Forum in Davos, Switzerland, on Jan. 26, when he declared the U.S. is “open for business, and we are competitive once again,” touting the future of the U.S.’s energy and manufacturing exports. That assertion, however, doesn’t ring true in the hospitality sector.

Just a few days before the one-year anniversary of Trump’s inauguration, 10 business and trade associations—including the American Hotel and Lodging Association (AHLA), the Asian American Hotel Owners Association (AAHOA), the U.S. Travel Association as well as the U.S. Chamber of Commerce—created a travel industry group called the Visit U.S. Coalition that’s aimed at staving off and reversing the U.S.’s growing unpopularity as a tourist destination.

“We are certainly concerned about the statistics,” said Craig Kalkut, the vice president of government affairs at the AHLA, who added that his organization is also concerned about smaller hotels near national parks that could be affected by the loss of revenue from international travelers. “It’s important for the hotel industry but also the businesses that surround [and occupy] hotels and the economy overall, so it’s time to take some action. We want to head this off and turn things around as best we can. All these associations are nervous enough that they want to be involved. We want a more welcoming message for the world, and we want to turn things around.”

Some members of associations within the Visit U.S. Coalition acknowledged the negative impacts of certain policy initiatives and rhetoric from the Trump administration but also pointed to indicators such as the strong U.S. dollar as a main culprit for the downturn. The U.S. dollar is at its weakest point in almost two years, having fallen 0.07 points to 89.16 on the U.S. Dollar Currency Index as of Feb. 4—its lowest level since November 2014, after peaking from a high of 102.15 on March 3, 2017—although it still remains strong against foreign currencies.

“When we look at the last five to 10 years, international tourism has been a hockey puck,” said Patrick Denihan, a co-CEO of hotel developer Denihan Hospitality Group. “I would say that right now we have no concern [about the dip in international travel], but I do have a concern in the way the administration is dealing with immigration. Ten to 12 percent of our business is in the international market.”

Denihan added, “It would be nice if the current administration were taking a different position. How much stronger would it be? I don’t know. But, we always like to have more business if we can get it.”  

The tight labor market, coupled with potential wage accelerations for hotel service employees—who are typically on the lower end of the wage scale—as well as potential tax hurdles for some markets, could also have an affect on operating costs.

“If the health of the labor market shifts and wages stagnate or contract, hotel fundamentals are the first to turn because of consumer spending,” Muoio said. “I would say the downside risks are bigger than the upside risks in terms of hotel operating. If there’s a downturn shock, this current supply overhang becomes a larger problem.”

Major indexes have taken a step back after getting off to a fast start to kick off the year, hinting that volatility has risen as strong wage figures have created some concerns about a pickup in inflation and a subsequent tightening of monetary policy. Outgoing Federal Reserve Chair Janet Yellen went so far as to question commercial real estate prices on CBS’ Sunday Morning in an interview recorded on Feb. 2, saying asset prices in general are “quite high relative to rents. Now, is that a bubble or is it too high? And there it’s very hard to tell. But it is a source of some concern that asset valuations are so high.”

It remains to be seen what could come of the hospitality sector, should an economic downturn swing into effect and domestic tourism take a hit, but one thing holds true: International tourism will not be there to help pick up the slack.

“We think this a great time to reverse this [downward travel] trend. For the first time ever, we have a hotel owner as a president,” Rogers said. “He has the largest platform of communication in the world with the ability to champion travel. He knows what it means to put more heads in beds.”

Source: commercial

Citing Customer Abuses, Regulator Orders Wells Fargo Not to Grow

Wells Fargo, America’s largest originator of commercial real estate loans, was shackled into unprecedented regulatory handcuffs on Friday, when the Federal Reserve condemned the bank’s leadership for allowing a series of sales scandals to fester unchecked.

The measure, submitted to the company’s board of directors on the last day of Janet Yellen‘s tenure as the Fed’s chairwoman, prohibits Wells from growing its balance sheet beyond its size at the end of 2017. The order is indefinite, pending the Fed’s determination that Wells has put its house in order.

The Fed faulted Wells’ board of directors for failing to prevent one of the largest consumer finance scandals in recent memory. Between 2011 and 2015, employees of the bank, struggling to earn steep incentives and to meet unrealistic sales targets, opened more than 2 million unauthorized accounts for unwitting individual clients.

More recently, the bank acknowledged that its auto lending division had forced hundreds of thousands of customers to buy car insurance that they didn’t need.

“It is incumbent upon the board of directors…to oversee an adequate risk management framework for the entire firm,” Michael Gibson, the Fed’s regulatory chief wrote, in a letter to the Wells Fargo board. “As events of the past few years have confirmed, Wells Fargo’s board’s performance of [its] oversight role did not meet our supervisory expectations.”

In the bank’s 2016 annual report—its most recent—Wells Fargo reported $507 billion in outstanding U.S. commercial and industrial real estate loans, including real estate mortgages and real estate construction and lease financing. The bank also won master servicer agreements on more than 60 percent of new commercial mortgage backed securities deals that year.

In addition to the growth prohibition, the Fed’s order demands that the bank submit plans to improve board oversight and regulatory compliance within 60 days, and to undergo a review of its progress by the end of September, 2018.

In a statement, the bank’s CEO, Timothy Sloan, pledged that Wells Fargo will respond proactively to the penalties.

“We take this order seriously and are focused on addressing all of the Federal Reserve’s concerns,” Sloan said. “It is important to note that the consent order is [related]…to prior issues where we have already made significant progress.”

By market close on Monday, Wells’ shares had fallen more than 8.5 percent below their closing price on Friday.

In a conference call with investors that day, the bank said that by curtailing deposits from financial institutions and commercial clients, Wells would still have the bandwidth to write new commercial real estate loans.

“We’re continuing to serve customers, make loans—including commercial real estate loans—and take deposits and will meet the requirements of” the Fed’s order, a Wells Fargo spokeswoman wrote in an email.

Christopher Whalen, the banker and consultant behind Whalen Global Advisors, opined that the Fed deserves some blame itself for fostering the environment that allowed Wells’ scandals to metastasize.

“The Fed has created this problem by letting these banks get so big,” Whalen said, citing the Fed’s giving its blessing to 2008 marriage of Wells Fargo and Wachovia. “It’s all because the Fed is paranoid about the treasury market. If they let primary dealers go down, there would be no one left to sell Uncle Sam’s debt.”

On the other hand, according to the analyst, the order could be a blessing in disguise for Sloan if he uses the growth limit as an excuse to cut bank on less profitable segments.

“Wells is gigantic,” Whalen said. “Telling them they can’t get any bigger, you’re doing them a favor.”

A representative from the Federal Reserve did not immediately respond to a request for comment.

Source: commercial

Wells Fargo Provides $80M Refi for G-Holdings’ LIC Resi Tower

Wells Fargo has provided an $80 million loan to New York-based G-Holdings Corporation to refinance Aurora, a 30-story luxury residential building located at 29-11 Queens Plaza North in Long Island City, Queens, according to records filed yesterday with the New York City Department of Finance.

The Dec. 7 financing replaces $80 million in previous Wells Fargo debt—including two building loans and a project loan—that closed in December 2013 and funded construction of the project.

Wells Fargo split the debt into three substitute mortgages, the first being a $43.3 million advance in funds to the borrower—which was then assigned to Transamerica Financial Life Insurance Company, a private holding company for several life insurance and investment firms. The company is a subsidiary of Aegon N.V., a life insurance company headquartered in the Netherlands. Aegon acquired Transamerica in 1999.

Built in 2016, the property is located between 29th Street and 41st Avenue with 132 rental units above a 160-key Marriott Courtyard hotel that opened in May. Monthly rents for the apartments, which are on floors 15 through 29, range from $2,650 for one-bedrooms to $4,200 for two-bedrooms, according to the property’s website.

A representative for Wells Fargo did not immediately return a request for comment. Officials at G- Holdings could not immediately be reached for comment.


Source: commercial

TF Cornerstone Lands $144M Wells Fargo Refi for 45 Wall Street

Wells Fargo has provided TF Cornerstone with a $144 million Freddie Mac financing package to refinance the developer’s residential skyscraper at 45 Wall Street, according to property records filed today with New York City Department of Finance.

The loan, which closed on Dec. 15, replaces a $134 million Fannie Mae loan that was assigned to J.P. Morgan Chase on Nov. 30. Wells Fargo’s $144 million Freddie Mac refinance paid that loan off, and the bank provided an additional $9.8 million in proceeds, records show.

buildingphoto 55 TF Cornerstone Lands $144M Wells Fargo Refi for 45 Wall Street
Entrance to 45 Wall Street. Courtesy: CoStar Group.

J.P Morgan provided a modification in the form of a first mortgage in order to give the borrower time to refinance its maturing Fannie Mae debt—which was then assigned to Wells Fargo two weeks later.

The 27-story, 493,187-square-foot residential high-rise building—located between William and Broad Streets in the Financial District—was built in 1958 and is comprised of 435 residential and five commercial units, according to PropertyShark. Eight of the residential units are vacant, according to TF Cornerstone’s website. Monthly rents at the property run from $2,845 for studios to $6,849 for three-bedrooms.

The building’s use was converted from office to residential in 1996, and is the former headquarters of Atlantic Insurance Company, according to CoStar Group. Chase Bank and Tourbillon are the building’s largest commercial tenants, occupying 8,341 square feet and 2,952 square feet, respectively.

Representatives for Wells Fargo and for TF Cornerstone did not provide comment before publication. 


Source: commercial

Amid Flat Market, Wells Fargo Ekes Out First Prize for 2017 NYC Commercial Lending

The Wells Fargo wagon pulled ahead of its Big Apple competition this year, as the global bank slid into first place among originators of commercial loans in New York City, according to new data from CrediFi.

The San Francisco-based institution wrote 49 commercial real estate loans cumulatively worth about $4 billion in New York City in 2017, edging out Morgan Stanley and Deutsche Bank, which held the top spot a year before. Signature Bank and JPMorgan Chase, which each originated nearly 400 commercial financings with much smaller average loan amounts, rounded out the top five.

The achievement represents less of a resounding Wells Fargo success than a slide in the fortunes of its competitors, the data show.

“In terms of raw dollar amount, Wells Fargo isn’t originating more in New York City now than it did in the first nine months of 2016,” the CrediFi report says. “But while financing by Wells Fargo remains stable, several other top lenders saw their origination decline this year, pushing Wells…to the top.”

While overall commercial lending in city was flat for the year, residential lenders found fewer opportunities to dig out their checkbooks. Compared with 2016 numbers, multifamily lending was down 19 percent to $26.3 billion in the city, according to the report.

Wells Fargo’s claim on the ranking’s No. 1 spot will come as a welcome counterpoint to an embarrassing stretch of bad headlines for America’s third-largest financial institution. Last September, the Consumer Financial Protection Bureau charged the bank $100 million in fines for creating around 2 million unauthorized consumer bank and credit accounts. Just two months later, Wells was forced to reach a $50 million settlement in response to accusations it had overcharged residential borrowers for post-default appraisals.

A spokesman for Wells did not immediately respond to a request for comment.

Meanwhile, two fresher faces had banner years of their own. LoanCore Capital Credit REIT, an investment vehicle of privately held LoanCore Capital, saw originations balloon nearly sevenfold during the year, growing to $400 million in the third quarter from just $60 million in the first.

And Madison Realty Capital found a home on CrediFi’s quarterly top-10 list for the first time in the third quarter, inching ahead of Bank of the Ozarks and Citigroup for the eighth slot in the standings.

“It’s been an active year, and we’ve definitely been filling the void in the market in terms of speciality finance and construction financing,” said Josh Zegen, one of the firm’s co-founders. “We’ve been finding some unique opportunities.”

Zegen cited Madison’s $300 million loan on Ceruzzi Holdings138 East 50th Street and a $270 million construction financing on All Year Management‘s apartment project in the old Rheingold Brewery building in Bushwick as two of the deals that rocketed his company onto the top-10 list.


Source: commercial

Menswear Company, Risk Management Nonprofit Ink 27K-SF in Leases at 1407 Broadway

Landlord Shorenstein Properties has snagged an upscale men’s clothier and a risk management nonprofit group as two new tenants spanning 26,580 square feet at 1407 Broadway in the Garment District, according to CBRE.

David Donahue, which produces dress shirts, ties and sport coats, has leased 13,735 square feet for 10 years on the entire 32nd floor of the 43-story office tower. The firm will relocate from nearby 141 West 36th Street. Corey Abdo of Coldwell Banker Commercial Advisors represented the clothing maker. Abdo didn’t immediately provide a comment.

In the second deal, the Risk Insurance Management Society took 12,845 square feet on the entire 29th floor of the office tower between West 38th and West 39th Streets. The nonprofit, which is “dedicated to educating, engaging and advocating for the global risk community,” will move from 5 Bryant Park. CBRE’s Laurence Briody and Brad Auerbach, along with Brad Needleman of Newmark Knight Frank, represented the tenant. A spokesman for NKF didn’t immediately respond to a request for comment.

Asking rent for both spaces was in the mid-$60s per square foot. CBRE’s Peter Turchin, Gregg Rothkin, Brett Shannon, Ben Fastenberg, Keith Caggiano, Ross Zimbalist handled both transactions for Shorenstein Properties.

“1407 Broadway is a highly flexible property with a very desirable location,” said Turchin in a prepared statement. “David Donahue sought high-quality office and showroom space reflective of their brand, and [Risk Insurance Management Society] was able to accommodate all of their employees onto a smaller, more efficient full floor.”

The 1.1-million-square-foot office tower recently got a $30 million renovation that included a new lobby, an upgraded facade and new retail and elevators. Over the course of the past year and a half, the building’s ground floor has acquired a roster of new retail tenants, like Mighty Quinn’s, Gregory’s Coffee, Juice Generation, Wells FargoNum Pang and Dig Inn.  


Source: commercial

Related Purchases Pacific Center in the South Bay of Los Angeles for $107 Million

Related Fund Management, a subsidiary of Related Companiespurchased the Pacific Center in Torrance, Calif. earlier this month, Commercial Observer has learned. The 306,765-square-foot office building located in the South Bay—part of the Los Angeles metropolitan area—was nabbed from Stream Realty for $106.8 million, according to a source familiar with the deal.

“This is the undisputed nicest property of this kind in the area,” Ryan Gallagher of HFF, who represented Stream Realty, told CO, pointing to its location as well as property upgrades. Stream, headquartered in Dallas, with offices in Sansunk, spent over $6 million for a full exterior landscape, lobby, bathroom and corridor upgrades after purchasing the property in 2015 for $68.5 million.

Proximity to the far costlier and in-demand coastal communities of Santa Monica, Venice and Playa Vista—dubbed “Silicon Beach” for the confluence of major tech companies like Google and Facebook and startups setting up shop there—also adds to its marketability according to Gallagher, who said vacancy rates in Silicon Beach are a miniscule 6 percent.

The Center at 21250 Hawthorne Boulevard sits at the heavily trafficked intersection of Hawthorne and Torrance Boulevards across from the Del Amo Fashion Center, the 2.3-million-square-foot super-regional shopping center which recently underwent a $500 million renovation.

The eight-story building is currently 91 percent leased and counts Bank of America, Morgan Stanley, Wells Fargo and Barrister Executive Suites among its tenants.

“We viewed the Pacific Center as a great asset with a diverse roster of marquee tenants and an excellent location,” a spokeswoman for Related Fund Management told CO, which plans on upgrading amenities including the addition of a fitness center and on-site café.

The Real Deal first reported news of the sale.


Source: commercial

Insurance Brokerage Inks 34K-SF Direct Deal to Remain in Midtown East Building

Insurance brokerage and consulting company USI Insurance Services has signed a 34,080-square-foot lease at Sapir Organization’s 261 Madison Avenue, Commercial Observer has learned.

The company previously occupied the entire fifth floor and a portion of the sixth floor of the 28-story building between East 38th and East 39th Streets as a subtenant starting in 2012 via a deal with defunct magazine publisher Source Interlink. Now USI has signed a deal directly with the Sapir Organization for the same space, according to information provided by Cushman & Wakefield. A spokeswoman for the brokerage declined to disclose the terms of the deal.

USI recently agreed to purchased Wells Fargo Insurance Services USA, the insurance brokerage and consulting arm of the bank. That new division is planning to move into USI’s digs.

“USI is a dynamic and fast-growing organization,” C&W’s David Itzkowitz, who handled the deal for the tenant with colleague Jack Keesser, said in a statement. “Their relationship with the ownership of 261 Madison Avenue has been excellent during their time as a subtenant, and the new lease will enable USI to continue on this path for the next several years.”

Existing tenants at the 383,934-square-foot building include Coca Cola North America, Epix Entertainment and Signature Bank.

Sapir Organization completed a more than $15 million renovation of the building last year. It included enhancement of the building’s facade,installation of thermal pane glass windows, upgrades to the lobby and storefronts and modernization of elevators.  

Alex Sapir and Eli Joseb of Sapir Organization handled the deal for the landlord in-house.

“We are very pleased to be continuing the relationship with USI and hope to have them grow in the property over the coming years,” Joseb said in a prepared statement.


Source: commercial

Wells Fargo Lends $92M on New School Dormitory Refinancing

Wells Fargo has provided Bhatia Development Organization and Sherwood Equities with roughly $92 million to refinance a dormitory for The New School near Union Square, according to property records made public yesterday.

The 10-year loan is for the property at 318 East 15th Street, located across from Stuyvesant Park near Second Avenue, and carries a fixed-rate. The interest-only loan includes a new gap mortgage of roughly $5 million, according to records. It replaces a $94 million Wells Fargo loan made in 2014, which had an unpaid balance of just over $87 million prior to the Oct. 6 refinancing. Bhatia Vice President Anand Bhatia wouldn’t disclose the exact rate of the loan but told Commercial Observer it’s less than 4 percent.

His father, Arun Bhatia, the president of the company, added: “I’ve been in business for 40 years. There are very few times you can get an opportunity to lock in a rate at under 4 percent.”

Bhatia and Sherwood wanted to refinance the loan and place it in a commercial mortgage-backed securities pool, which has worked to help them lock in a longer term and a lower interest rate, Bhatia said. The loan-to-value ratio on the property is 60 percent, and a spokesman for the borrower said the loan is still awaiting CMBS execution. Bhatia won’t pay down the principal, allowing the landlords more access to the money the property generates.

“There isn’t one specific purpose,” Bhatia said. “It just gives us more flexibility to do something at this property, whether it’s new projects or upgrades at this project.”

Richard Horowitz, a principal at brokerage Cooper Horowitz, represented Bhatia in the deal, and Wells Fargo Managing Director Terry Livingston originated the transaction.

Bhatia originally acquired the 100,000-square-foot property in a joint venture with Sherwood Equities in January 2008 for $56 million. The partners then completed a renovation of the property, upgrading electrical systems, creating suite-style rooms for the dorm and improving heating, ventilation and air conditioning.

The building houses The New School’s largest dorm, Stuyvesant Park Residence, with 640 freshmen. The New School signed a 15-year lease for the property in 2009.

A spokeswoman for Wells Fargo declined to comment, citing regulatory rules.


Source: commercial

Plight of 400 Atlantic Worsens as Charter Announces New Stamford HQ

When the mortgage refinancing 400 Atlantic Street, in Stamford, Conn., was packaged into the Goldman Sachs-sponsored GSMS 2007-GG10 CMBS deal in March 2007, there were no particular red flags. Representing a modest 3.5 percent of the deal’s initial balance, the loan was secured by what looked at the time to be a thriving office tower. Ninety-seven percent of the building was leased, to tenants like UBS, American Express, and International Paper. Stamford was a bustling financial center. And the leader of the borrowers’ group was Alan Landis, founder of the Landis Group and a co-owner of the New York Yankees.

In the years since, however, fate has not been kind.

Nearly five months into the $265 million loan’s second trip to special servicing, the building’s second-largest tenant, Charter Communications, announced on Tuesday it would vacate its 110,000 square feet in the building, wiping out more than 20 percent of the building’s occupancy. UBS, which has gradually decamped from Stamford over several years, will finish vacating its 50 percent of the building next year. And International Paper and American Express, who together recently took up over 30 percent of the tower’s space, have also moved out.

Those departures have left the building—whose owners had never missed a loan payment before the recent maturity default—in dire straits. At securitization, the building was valued at $335 million, but a 2016 appraisal cut that number by 60 percent, to only $134 million.

By its own account, the Landis Group’s attempts to restructure the building’s debt with the special servicer, C-III, have not gone smoothly. In a statement sent to CO, a Landis representative said that the group has been trying to negotiate an exit plan with its servicers for three years, but that C-III, along with master servicer Wells Fargo, have passed on “multiple opportunities to agree to various proposals initiated by the owner to restructure the loan at amounts that were each higher” than the building’s latest valuations.

Landis believes that the loan’s servicers are suppressing independent appraisals they have obtained, because the assessments reflect amounts lower than Landis’s offer to settle the debt, the representative said.

Landis declined to elaborate on this contention. Wells Fargo referred questions about the loan to C-III, which did not respond to requests for comment.

The Stamford office tower’s struggles have rippled into headaches for the investors in the remaining tranches of GSMS 2007-GG10. The transaction is now more than 90 percent paid down, but the 400 Atlantic loan—the single largest still outstanding—now represents 35 percent of the principal balance and thirteen of the transaction’s other 20 loans are also in special servicing. In early September, Moody’s downgraded its rating on the transaction’s remaining subordinate class to C—and that was before Charter announced it would be moving out.

“We have a very large expected loss, 18.2 percent, on the original pool balance,” Moody’s analyst Wesley Flamer-Binion told CO, “and this loan is contributing to that.” He described the markdown as “huge.”

Analysts had long viewed 2017 as a significant roadblock for legacy CMBS deals, as the so-called maturity wall of 10-year debt originated in 2007 came due.

But if many struggling vintage CMBS loans appear the height of folly in retrospect, 400 Atlantic is not one of them. With strong tenancy, a solvent, high-profile borrower, and a reasonable initial loan-to-value ratio below 80 percent, the loan showed none of the troubling hallmarks at signing that marked other loans of the period even before the ink was dry.

“Only seers might have known,” that the 2010s would bring a “back-to-downtown” migration among financial services companies and other big office tenants, Manus Clancy, a senior managing director at Trepp, told CO. That trend has damned suburban business centers like Stamford over the past decade, complicating their efforts to keep major office tenants like UBS.

Several other commercial loans in the city have run into delinquency trouble, and Royal Bank of Scotland, once a major financial player in the city, has laid off more than 600 workers at its U.S. headquarters in Stamford since the start of 2015.

UBS’ “thought was, ‘we’re not attracting the kind of talent we need.’ And people need to get out of high-cost states” like Connecticut, Clancy said. “You see it to some degree outside of Boston, too. People want to be near Northwestern, MIT, or downtown Manhattan.”

Charter, on the other hand, is only moving across town, to a site called Gateway Harbor, near where the Rippowam River flows into the Long Island Sound. The telecommunications company will reportedly spend $100 million developing its new headquarters—with state of Connecticut kicking in a $20 million incentives package.


Source: commercial