Greenway Plaza owners see ratings downgrade after default

CPP Investments, Nuveen Real Estate, Silverpeak Real Estate Partners and Parkway Property Investments, co-owners of Greenway Plaza in downtown Houston, defaulted on a $465 million loan.

The loan has been transferred to special servicing, according to an Aug. 25 report from Moody’s Investor Services.

The investors failed to pay off the five-year, fixed-rate loan issued by Goldman Sachs at its initial maturity date in May 2022, the Moody’s report states. A forbearance agreement was executed and expired in July. The investors have requested a 90-day extension to the payment pause while discussions take place for a longer term loan extension.

Moody’s downgraded two bonds that back the loan after the investors defaulted in May, according to the report.

The bonds were rated AA and AAA as of March but have been downgraded to A and BB. Greenway Plaza, a 52-acre master planned community, is considered the premiere city center business district in Houston.

Net cash flow for the Greenway Plaza investment portfolio had taken a significant hit in the first quarter of 2022, the ratings bureau report stated. The investors jointly reported an intake of $6.6 million in the first quarter of 2022, compared to nearly $38 million and almost $56 million for the same period of 2021 and 2020, respectively. Moody’s cited lack of payments on the loan and a decline in Houston’s office market as primary reasons for the ratings adjustment.

The Houston office market has been hit hard in recent months, as reported by various commercial real estate firms. Nineteen percent of Houston’s 350 million square feet of office space was sitting empty in October, with 9 million square feet available to sublet, according to CoStar. Most of the empty space is in Houston’s downtown market with some sublease rents going for under $20 per square foot.

Greenway Plaza includes tenants such as Occidental Petroleum Group, Invesco, CPL Retail Energy, Gulf South Pipeline and Lifetime Fitness. The Greenway Plaza submarket includes 6.6 million square feet of Class A office space, with a vacancy of 25 percent in Q2 2022, according to CBRE. That vacancy rate is similar to the overall Houston market, which reported 24 percent vacancy during the same period.