CMBS Loan on Philly Class B Office Property Seals 30-Month Extension
The extension, plus a recent recap, solidifies the property's ability to continue building on leasing momentum at the property, sources said.
If you’re an owner of a Class B office with a pending loan maturity, chances are you’re not sleeping amazingly well right now.
But, here’s some positive news to start off your week.
The $38 million commercial mortgage-backed securities (CMBS) loan on One South Broad Street, a 25-story, 463,988-square-foot Class B office building in Philadelphia’s Center City neighborhood,was just extended by 30 months.
Iron Hound Management’s Chris Herron and Anthony D’Amelio negotiated the modification between ownership — an entity controlled by New York-based Aion Partners — and the CMBS trust, controlled by Rialto Capital.
The loan, originated in 2012, is part of the JPMCC 2012-LC9 CMBS deal. Aion Partners acquired the property from 601W Companies for $68 million in 2014, assuming its debt at the time. No additional debt has been added to the building since the acquisition.
The 10-year CMBS loan matured in December 2022 and followed the loss of the building’s anchor tenant, Wells Fargo. Still, a recapitalization of the property took place this month on the heels of significant leasing momentum at the building throughout the pandemic and into this year. The recap allowed for an infusion of new equity into the asset by the borrower, with the lion’s share of proceeds going toward continued leasing activity.
One South Broad Street is the last office property in Aion’s portfolio today, with the firm chiefly focusing on value-add multifamily investments going forward.
“It’s a very tough market for offices, but you have to just keep your head down and continue on,” Michael Betancourt, a founding partner and managing director of Aion Partners, told CO. “The loan matured on Dec. 1, 2022, so it took nine months to effectuate an extension, but it’s a very difficult and uncertain environment for lenders, bondholders and owners to make decisions. We’re thankfully well capitalized and the asset is in a good position for the next few years, while other office market participants may have issues.”
While Philadelphia’s office sector has been particularly hard hit by vacancies — with Philadelphia’s occupancy rates hovering around 40 percent in June, per the Wall Street Journal — One South Broad Street has much in its favor.
“It’s in the middle of the city, adjacent to City Hall — really the best location in Philadelphia,” Betancourt said. “We’re also in the transaction at a very compelling basis, with very low debt.”
Over the past few years, Aion was able to extend several of One South Broad’s leases by two to five years, Betancourt said. “So, there was visibility to positive cash flow compared to other buildings in Philly, where several offices are going into special servicing.”
Insomnia Cookies, Kepler Group and District Local 1199C Training and Upgrading Fund signed new leases at the building totaling 59,613 square feet. Six other new tenants also moved to the property over the past few years, including Brown & Associates, Williams Cedar, RockIT, Nochumson and others, taking space amounting to 30,173 square feet.
“During the pandemic we lost Walgreens, which decided to close, but we backfilled the space with Insomnia Cookies, which leased 20,000 square feet in depths of COVID,” Betancourt said.
Filling Wells Fargo’s space has been top of mind. After spending more than two decades at the property, the tenant announced it was relocating to four floors at Two Logan Square beginning in September 2020, NBC Philadelphia reported. While its exit left a large hole across six floors of One South Broad Street, ownership has been focused on the marketing and redevelopment of its space, with multiple potential uses as options.
In 2021, Aion was marketing the space as a potential lab conversion due to the building’s ample ceiling heights coupled with its elevator shafts being able to be used for air circulation, Philadelphia Business Journal reported.
However, District Local 1199C Training and Upgrading Fund recently filled some of that space, taking 18,000 square feet on the sixth floor, previously occupied by Wells Fargo.
“We were excited to ink this meaningful lease and continue the positive momentum,” Betancourt said. “We’re putting the asset on a good path going forward, and we think we’ll have a competitive advantage when the market turns around.”
Iron Hound officials declined to comment.
Cathy Cunningham can be reached at email@example.com.