Not pictured: Waldorf Astoria Washington DC, On Aug. 5, BDT & MSD Partners took title of the Waldorf Astoria Washington DC hotel after giving CGI Merchant a 45-day extension to try to recapitalize the hotel. CGI Merchant had bought the hotel for $375 million from the Trump Organization in 2022.
Raoul Thomas is having a helluva year.
Thomas’ Miami-based CGI Merchant Group is getting pummeled with foreclosure filings and reports of delinquent loan payments, putting nearly its entire portfolio amassed over two decades into debt trouble.
It’s not the first tough time for CGI Merchant. The firm weathered the pandemic slowdown. But the current economic headwinds –– defined by elevated interest rates, skyrocketing insurance and skittish lenders –– have proven tough to overcome.
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CGI faces foreclosure on a South Beach hotel and a pair of office buildings in Coral Gables and Miami’s Coconut Grove, as well as reports of delinquent debt payments on several office properties, including part of its Nexus Workspaces co-working portfolio. All this comes after CGI lost two of its marquee buildings, a hotel in downtown Miami and the Waldorf Astoria Washington DC, which is the former Trump International Hotel that Thomas bought from the president-elect in 2022.
Through it all, Thomas has remained steadfast in his attempts to keep his properties. Case in point: He has not voluntarily walked away from a single building, trying to find a workout such as an equity infusion or recapitalization up to the last minute before scheduled auctions.
CGI is working on a “global solution” that is “very close to being finalized” and will address the “portfolio’s capital challenges,” which are due to elevated interest rates, said a source familiar with the matter.
CGI has said it was always current on debt obligations prior to the current elevated interest rate environment.
Some of its properties have fixed-rate loans with maturities this year. For landlords in this situation, refinancings are often at higher rates and are generally difficult to secure because lenders have become more conservative and especially reluctant to finance offices.
CGI’s woes counter a common narrative that South Florida will be more resilient to headwinds. The influx of out-of-state residents and businesses prompted hefty leasing and record rents over the past five years, leading some in the industry to suspect the tri-county region will weather the economic slowdown. That’s turned out not to be the case, as investors across the region and asset classes are feeling the sting from higher costs that aren’t offset by rental income.
Here’s a roundup of CGI’s buildings that are under siege by lenders.
Nexus offices
CGI’s co-working provider Nexus has five outposts mostly in South Florida.
Last month, CGI Merchant was 30 days delinquent on meeting its payments for the loan on Nexus offices at 2101 Vista Parkway, near West Palm Beach, as well as at 8401 and 8461 Lake Worth Road near Wellington, according to Morningstar Credit. The loan also is backed by the building at 850 Northwest Federal Highway in Stuart in Florida’s Treasure Coast.
In 2018, CGI Merchant scored a $15.7 million refinancing from Starwood Mortgage Capital, an affiliate of billionaire Barry Sternlicht’s Miami Beach-based Starwood Capital Group. The loan, which now has a balance of $14.2 million at a fixed 5.39 percent interest rate, matures in June, Morningstar Credit data shows. The financing is “watchlisted,” a status indicating concerns over a borrower’s ability to meet debt obligations, though loans maturing soon generally are put on a watchlist.
CGI Merchant was hit with unexpected expenditures such as replacement of heating, ventilation and air conditioning systems and other necessary repairs, said a company representative. The firm has made and is making payments to Starwood to cover what it owes, the representative said.
The 2101 Vista Parkway building was completed in 1989. The 8401 and 8461 Lake Worth Road buildings were finished in 2006, and the Stuart building was completed in 2005, according to records. CGI bought them in 2013 in three deals for a combined $12.6 million.
The Nexus portfolio -– which also includes the office buildings at 20283 State Road 7 near Boca Raton and 1375 Gateway Boulevard in Boynton Beach, which are not backed by the Starwood loan –– is slated to be sold to Santa Monica, California-based GBT Technologies. The deal also is for the Nexus intellectual property.
The intellectual property includes its booking and billing software and other technology. The co-working provider, which has 800-plus tenants, offers “virtual offices,” allowing tenants to have an office at each Nexus outpost, and bookings for staging areas for business presentations, conference rooms and events, Thomas said, adding that the tech aspect of the portfolio adds significant income.
The rent income from tenants also has upside potential, he said. A recent review of comparable co-working space providers showed the average industry rent ranges from $80 per square foot to $100 per square foot, whereas Nexus’ rent now is at about $60 a square foot, Thomas said.
GBT’s purchase will be phased, starting with the purchase of a 49 percent stake in the property in Stuart, as well as those near West Palm and Wellington, according to a GBT news release.
A valuation for the GBT deal is unknown. CGI and Thomas declined to comment on the Nexus sale price, and GBT didn’t return a request for comment.
55 Miracle Mile
CGI Merchant owns the office and retail portion at the Ten Aragon Condominium in Coral Gables.
In November, the loan on the property at 55 Miracle Mile entered special servicing for being over 60 days delinquent on payments, according to Morningstar Credit. CGI secured a $25 million refinancing in 2018 from Starwood Mortgage Capital at a fixed 5.49 percent interest rate, with the current balance being $24.2 million, Morningstar Credit shows. The financing matures in June.
CGI’s commercial space at Ten Aragon is 89 percent occupied, according to Morningstar.
Similar to the Nexus portfolio, CGI has been making and is making payments on the overdue amounts, a company representative said.
The building’s debt trouble comes after Florida legislators imposed stricter requirements for inspections and reserves on condo buildings due to the deadly Surfside collapse in 2021 that killed 98 people. Ten Aragon was completed in 2004, meaning it’s not yet due for its first 30-year recertification. But by the end of last year, all condo associations were required to complete a Structural Integrity Reserve Study, including for roofs, load-bearing walls and foundations. Budgets approved after the SIRS is completed have to include reserves to complete the items the study identified as needing work. Previously, funding reserves was optional.
The Surfside collapse and follow-up legislation have led condo associations to focus on sometimes long-deferred maintenance needs, prompting multimillion-dollar assessments.
At some mixed-use complexes that consist of condos, as well as retail and offices, like Ten Aragon, the commercial spaces’ owners also could be on the hook for common area maintenance expenses.
CGI’s portion of Ten Aragon also has caught the interest of prospective buyers, who have put in offers for the property, according to a source.
3480 Main Highway
Most recently, CGI Merchant was hit with a foreclosure on its headquarters building at 3480 Main Highway in Miami’s Coconut Grove.
New York-based lender Madison Realty Capital filed a Uniform Commercial Code foreclosure on a $4.7 million debt on the building, according to a public notice.
In 2021, Madison provided a $35.5 million financing, records show. The lender is foreclosing on the $3 million mezzanine portion of the loan, which now is $4.7 million, inclusive of interest.
A UCC auction is scheduled for Jan. 28, with Madison reserving the right to credit bid. In a UCC procedure, the lender auctions the ownership interest in the CGI affiliate that owns the building, and the winning bidder also will have to assume the remaining $32.5 million portion of the loan.
CGI paid $3 million for the building in 2014, according to records. Records also show that the property has about $322,300 in liens filed last year, including two liens from Colliers’ work securing two tenant leases in 2023, and one lien from the state for unpaid sales and use tax.
The building is fully leased and “in extremely great health,” a CGI representative said in a statement.
Tenants include Level 6 rooftop restaurant and Lebanese restaurant Amal. Global safety tech and services firm Wrap Technologies leased 4,500 square feet in October.
CGI is in talks with the lender to reach “an amicable solution” that would negate the auction,a company representative said, adding that “extraordinary circumstances” and elevated interest rates led to the debt trouble.
The UCC filing on 3480 Main Highway marked the fifth foreclosure against CGI Merchant since last year.
550 Biltmore Way
In Coral Gables, lender Cerberus Capital Management last month filed a UCC foreclosure on the loan for CGI’s 15-story 550 Biltmore Way office building.
In 2019, CGI paid $54.4 million for the building and borrowed a $46.5 million loan from MSD Partners. (The lender now is BDT & MSD Partners following a merger.) CGI refinanced with Cerberus in 2021, bumping the total to $48.7 million, according to records.
The property is 90 percent occupied, but is slated to lose UBS this year, after the bank signed a new lease elsewhere.
CGI has said it’s working with the lender for a “mutually positive resolution.”
The auction, originally scheduled for Dec. 19, was postponed to Thursday and then postponed again. Postponements of UCC auctions signify that a developer and lender are in talks about a possible recapitalization, equity infusion or another workout that would avoid an auction.
Gabriel South Beach
The 132-key Gabriel South Beach hotel at 620-650 Ocean Drive in Miami Beach has been under a UCC foreclosure since May.
The auction has been postponed multiple times, most recently to Feb. 12, signifying ongoing negotiations between the borrower and lender.
CGI, through its hospitality opportunity fund that counts retired baseball player Alex Rodriguez among its investors, bought the hotel for $108.6 million in 2021. The foreclosure is over a $71.1 million loan CGI borrowed in 2021 from Deutsche Bank, records show.
Gabriel Downtown Miami and Waldorf Astoria DC
Aug. 5 was not a good day for CGI. The firm lost in foreclosure both its Walford Astoria Washington DC and its Gabriel Downtown Miami hotels to lenders.
Thomas had been trying to refinance a $285 million loan on the Waldorf Astoria, but lender BDT & MSD Capital Partners got tired of waiting, foreclosing on the property after postponing the auction by 45 days. CGI’s hotel fund had paid $375 million to the Trump Organization for the building’s leasehold interest in 2022.
The debt woes arose partly because of a $35.4 million transfer tax bill tacked on by the District of Columbia at the time of closing. That amount was much more than the Trump Organization had paid when it bought the property and also more than the $9 million transfer tax the firm had anticipated, Thomas told The Real Deal in an interview last summer. The bill ate up CGI’s roughly $40 million reserve fund for the property.
In Miami, Madison Realty Capital took title of the 129-key hotel at 1100 Biscayne Boulevard in downtown Miami. The Gabriel Downtown Miami is part of the luxury Marquis condo complex. Madison’s UCC foreclosure was over a $60.4 million loan it had provided in 2021. Records show the hotel was transferred to the lender through a deed-in-lieu of foreclosure.