Loans totaling $96M on offices buildings are in default

"Falls Corporate Center in Conshohocken, once a crown jewel in the office submarket here, and two other suburban office properties owned by Thomas Properties Group, are in a state of limbo while the landlord and its lender try to work out a deal on $96.5 million in loans in default.

The loans are secured by the three office properties. The landlord is in discussions with the lender to renegotiate the debt or “facilitate a sale or other liquidation of these properties” to resolve the situation, according to a Securities and Exchange Commission filing by the company. A local company executive declined comment, referring to the SEC filings.

This is a fate met by other commercial property owners throughout the region, many of which have loans on properties whose values have fallen to the point where they are less than the amount borrowed. In fact, the “list of properties in special servicing and receivership continues to grow.”
The Thomas Properties loans came due last March and went unpaid, automatically forcing them into default. At the time, the company decided it would not make any payments on the loans to help repay them or refinance them, according to SEC documents. Thomas is accruing interest on the loans and a special servicer, LNR Partners Inc., is overseeing the situation. The two other properties involved are Walnut Hill Plaza and Oak Hill Plaza in King of Prussia.

Real estate observers and those familiar with this situation believe issues surrounding the loans will soon be settled and could have a range of outcomes. Some sort of “liquidation,” as referred to by Thomas in its filings, such as a foreclosure, is an option.

The biggest issue thwarting a solution is figuring out the value of the properties, according to one person involved in the local real estate scene. Appraisals of the three buildings have dramatically reduced the properties’ values from their original sale amounts.

“It’s been hard to peg values because values declined rapidly after the 2008 financial crisis and have been recovering since late 2009 and throughout 2010; values in some markets are snapping back and other markets, creeping back,” the observer said.

Like many commercial real estate investors, Thomas bought Four Falls, Walnut Hill and Oak Hill in 2005 as the market was getting over heated as part of a $170 million acquisition to buy a suburban portfolio owned by Equity Office Properties Trust. The transaction consisted of nearly 1 million square feet in 11 buildings. It was a joint venture with California State Teachers Retirement System.

It marked Thomas’ first foray into the Philadelphia suburban market after building up a strong presence in Center City with One and Two Commerce Square and 1835 Market St.

The gem in that portfolio was Four Falls, which was constructed in 1987. It set the stage for West Conshohocken and Conshohocken to become among the most desired local office addresses.

Four Falls consists of two six-story buildings totaling 254,000 square feet. It’s about 85 percent occupied. The Conshohocken office submarket has held its own during the recession. Its overall vacancy rate stands at 11.1 percent at year end. Average rents are at $29 a square foot.

King of Prussia, where the two other buildings are located, hasn’t fared as well. It has an overall vacancy rate of 18.2 percent, or more than 1.5 million square feet of empty space.

Walnut Hill is a four-story office complex of 150,572 square feet at 150 S. Warner Road in King of Prussia, and is half vacant. Oak Hill is four-story, 164,360-square-foot office property 200 N. Warner and is nearly fully occupied."