Fortis’ CMBS Loan for Colonnade Sent to Special Servicing

A top New York developer with major office holdings in Dallas is facing trouble at one of its Texas holdings.

The CMBS portion of the debt behind Fortis Property Group’s Colonnade Office Complex has been transferred to special servicing, according to data from Morningstar. The complex, at 15301 to 15305 Dallas Parkway in Addison, consists of three recently renovated office buildings totaling about 1 million square feet.

“Imminent monetary default” is listed as the reason for transfer to special servicing. The debt, originated in January 2019, matures in February. At issuance, the loan was worth $223 million, not including mezzanine debt. The loan is spread among several debt classes including three CMBS pools, with $30 million outstanding in this one.

The loan was first transferred to special servicing in September when Fortis defaulted on $17 million in mezzanine loans and indicated that it couldn’t cover debt service, as occupancy was declining and lease costs were rising, according to servicer commentary. Fortis has asked for a temporary modification that would defer debt service for three months as the firm works to complete five lease renewals, the servicer added. Fortis indicated that it is preparing a more comprehensive modification request as the February maturity nears.

Fortis has increased rents at the Colonnade from $24 per square foot when it bought the building to over $35 per square foot, according to the firm’s website. That puts it in the ballpark of the city’s average rent at Class A offices of $38.26 per square foot, according to numbers from JLL.

The office complex was built in 1983 and Fortis bought it in 2013. The firm began renovations at the property in 2015. Morningstar pegs the property’s appraised value at $347.6 million, and Fortis claims on its website that, if sold today, the property would generate a 35 percent internal rate of return.

About 27 percent of Class A office space in Dallas sits vacant, according to Partners Real Estate. Fortis’ website says the Colonnade is 96 percent occupied, but the special servicer commentary from October says its occupancy rate is 75 percent.

Fortis has been battling legal challenges in New York over its leaning tower in the Financial District and a former medical campus in Cobble Hill.

The firm’s portfolio is focused in New York, Boston and Dallas. In New York, it developed Olympia Dumbo, which has been one of the top-selling condo projects in the city and set records for Brooklyn sale prices. In Dallas, it owns the Dallas Arts Tower (formerly Chase Tower), Harwood Center and the Point at Las Colinas, among other properties.

Fortis did not return a request for comment by publication time.

READ MORE LINKS: