Defaulted Loan Tied to Houston’s CityNorth is For Sale

The defaulted loan tied to Houston’s CityNorth office campus is for sale, less than a decade after the property underwent an $80 million renovation.

JLL is marketing the $75.8 million nonperforming loan tied to a 1 million-square-foot portion of the office campus, JLL’s Tom Hall said in a LinkedIn post. The default amount comes to $72 per square foot.

The loan, which Deutsche Bank originated in 2021, is backed by three office buildings: CityNorth 2, 3 and 4, at 16825,16855 and 17001 Northchase Drive, plus two retail buildings, all of which sit on 23 acres in Houston’s Greenspoint neighborhood. The property is 74 percent occupied, Hall said in his post.

The note is being sold as a “deed-in-escrow” opportunity, which would allow the buyer to quickly take over the property from owner Lincoln Property Group. Hall and Kyle Kaminski are handling the listing; bids are due May 12.

The collateral is part of the CityNorth complex, a six-building office campus that was once home to ExxonMobil. Built in 1978, the property underwent a sweeping renovation that wrapped up in late 2019. As part of the renovation, Lincoln Property built a new fitness center, a 10,000-square-foot conference center and a 6,000-square-foot entertainment facility with a golf simulator.

As the owner tries to sell the loan, the unnamed private equity group that owns the rest of the property is also looking to sell.

Colliers’ David Carter is marketing CityNorth 1, 5 and 6. The listing comes over a year after Lincoln Property Company offered CityNorth 1 and 6 up for auction. Bids started at nearly $1.9 million and $2.4 million, respectively.

Distress at CityNorth underscores the downtrodden nature of Houston’s office market, whose vacancy rate sits at an elevated 27 percent, Avison Young reported. Sinking valuations of distressed buildings have provided opportunities for corporate tenants that are finding it’s cheaper to buy a building than rent.