Office distress mounting in Houston 

68 office properties account for $2B in CMBS loans, expiring within 18 months

Office Distress Mounting in Houston
1 Greenway Plaza and 1021 Main Street (Google Maps, Getty)

Sound the alarms in Houston, because a wave of office distress is starting to ripple through the city amid historically low demand for office space.

As of July 25, nearly 1,300 commercial properties in the Houston area were backed with CMBS loans totalling $5.9 billion, all of which are set to mature within 18 months, the Houston Business Journal reported. Just 68 office properties in the region accounted for $2 billion of that debt.

Houston has some of the largest loan balances in the country, and distress continues to snowball. Remote work, triggered by the pandemic, continues to linger, driving up vacancies and making it increasingly tougher for landlords to pay off their debts, especially with higher interest rates and a tight lending climate compounding the issue in recent months. 

Years of poor performance in the office sector has formed a ticking time bomb that’s ready to explode. If the aftermath in Houston looks like other cities that are already knee deep in distress, like Chicago, landlords could be forced to hand the keys back to their lenders, sell their holdings at steep losses or face foreclosure litigation.

Of the 68 Greater Houston office properties with mounting debt, 57 were flagged for performance issues or concerns over a borrower’s ability to stay up to date on their mortgage, the outlet said. 

Class A buildings with recent upgrades and top-tier amenities are essentially the only office properties staying afloat. Class B and C buildings, however, will soon be obsolete unless they receive major overhauls, according to Shams Merchant, a real estate attorney in Houston. Most of the flagged properties were built in the 20th century and are in much need of makeovers. 

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Some of the most severely distressed properties in the region include the Greenway Plaza and One City Centre, both in the downtown area. 

The 10-building Greenway Plaza, owned by a venture of CPP Investments, Nuveen Real Estate and Silverpeak Real Estate Partners, has a loan balance of $465 million. The loan was transferred to a special servicer — a glaring sign of a struggling property — in May 2022, around the time of the maturity date. 

The owners negotiated a forbearance agreement to give them more time to attain financing and pay off the debt, but that agreement expired on July 6. Greenway Plaza’s occupancy rate has fallen to about 65 percent from 88 percent in March 2020.

The 31-story One City Centre has a loan balance of $100 million, which was also transferred to a special servicer in late June due to concerns of “imminent default,” the outlet reported. The owner, Florida-based Accesso Partners, lost its largest tenant in 2020, and the building’s occupancy rate plummeted to 25 percent last year.

—Quinn Donoghue 

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