A $65.1 million note on McConnell Johnson Real Estate’s Delaware office complex Hercules Plaza has been transferred to special servicer CWCapital Asset Management for a second time, now facing imminent monetary default, according to an alert from Fitch Ratings. The loan is current but has a ‘watchlist’ status.
The Delaware-based borrower is seeking a second loan modification, according to a source close to the transaction who pinned the return to special servicing on office market conditions in Wilmington. “The collateral is beautiful, everything is in great shape—they just need the market to cooperate,” the individual said.
Hercules Plaza is the largest loan in the WBCMT 2006-C25 commercial mortgage-backed security, comprising 33.5 percent of the deal, according to Trepp. The underlying property is a 518,409 square-foot, 12-story office building located at 1313 North Market Street.
The office plaza’s largest tenant, chemical company Ashland Inc., moved out earlier this year and the borrower has been unable to fill the 125,588 square feet left behind. The building currently has 287,000 square feet of active leases, including Conde Nast, Pepper Hamilton and TD Bank. Delaware Board of Trade also joined the rent roll earlier this year with a 15-year lease for approximately 10,000 square feet.
The loan’s first visit to the servicer in May 2014 resulted in a two-year maturity extension, which pushed the debt’s expiration out to April 2018, and changed changed the asset from principal and interest to interest-only payments for the duration of the loan, according to servicing commentary.
“Ashland moved out and caused the flip. That’s the issue. The building is doing everything it is supposed to do, it just can’t hit the target for interest-only payments at this point,” said the market source.
The first modification was executed in order to create some breathing room, in the hope that the market would come back in the property’s favor, the source told Commercial Observer Finance. However the Wilmington office market has had no new absorption for the past six years, they said.
McConnell Johnson also owns 1201 North Market Street, a 450,000- square-foot office building across from Hercules Plaza, as well as warehouse buildings across the state of Delaware and in Baltimore. Servicer commentary shows that the borrower is committed to the property and has continually put money back into Hercules Plaza, having paid off the $20 million B note in May 2014 and later buying the ground lease for $5 million.
Representatives for McConnell Johnson could not immediately be reached for comment. Officials at CWCapital did not respond to requests for comment.