City Office REIT is cutting its losses on a CMBS loan tied to a Richardson office building.
After the firm transferred its $41 million loan to a special servicer in April, City Office agreed that a default had occurred and released the property to a court-appointed receiver to assume control of 190 Office Center, according to a May 15 SEC filing.
City Office acquired the 307,000 square foot, two-building, Class A property, located at 1301 West President George Bush Highway, in 2015. The property had a 93 percent occupancy rate before falling to 76 percent in December, according to a Morningstar report.
Anchor tenant United Healthcare reduced its 173,000-square-foot space by 60 percent last year, Morningstar reported. City Office in December reported an “impairment of real estate” of $6.9 million on the property, meaning its carrying costs exceeded its recoverable amount.
City Office didn’t immediately respond to a request for comment.
CMBS loan defaults are the latest sign of distress coming for Class A offices. While the Texas market has held far steadier compared to other major markets, distress is beginning to seep into commercial and multifamily real estate across the Lone Star State.
The office sector has been struggling with softening demand for space and depreciating property values. Rising interest rates are beginning to affect even the sturdiest commercial markets.
Class A occupancy in central business districts across the country dropped in the fourth quarter of 2022, according to Moody’s Analytics. Dallas office vacancy rates rose to around 25 percent last year, equating to nearly 57 million square feet of unused space, according to CBRE.
City Office, an investment firm based in Vancouver, British Columbia, and Dallas, focuses on Class-A office properties in the Sun Belt. It owns more than 60 buildings and 6.2 million square feet of office space in the Dallas, Denver, Orlando, Phoenix, Portland, Raleigh, San Diego, Seattle and Tampa metro areas, according to its website. The firm holds two office properties in Dallas, 2525 McKinnon in Dallas’ Uptown district, and the Terraces at 5960 Berkshire Lane in the Preston Hollow area.
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