The Dallas commercial real estate market may not be as healthy as some fluffers would have us believe. The other night, Tina Brown told a packed audience at SMU’s Tate Lecture Series that every business is struggling today — struggling to stay afloat, struggling to figure out the new world of marketing via web and social media, struggling to figure out where the next big thing is going to be or even if there IS a next big thing on the 9% unemployment horizon. Case in point: Metropolitan Real Estate Investors LLC is struggling to keep up with their $180 million loan on Comerica Bank Tower in Dallas. Their account has been transferred to a special servicer due to a risk of default, according to Fitch Ratings and as reported in the Wall Street Journal.
Now LA-based Metropolitan has the honor of being one of the largest, most highest-profile commercial real estate assets in North Texas to be “in trouble”. And at 1.5 million square feet, it’s a doozy.
Metropolitan Real Estate Investors LLC bought the third tallest tower in Dallas in 2006 for a hefty $216 million. All you have to do is see “2006″ to know they paid peak price. The trophy granite high-rise was designed by architect Philip Johnson and his former partner, John Burgee, and was built in 1987. According to the Journal, Metropolitan got a hefty $180 million mortgage, which they’ve been able to shoulder until now. But here’s the trouble on the horizon: a major tenant is not renewing its lease. That tenant would be Energy Future Holdings, which holds a lease until Sept. 14. Energy Future Holdings currently subleases its space to TM Advertising, who, according to the Dallas Morning News is giving a hand to Victory by moving down there. Probably got a better deal, too. TM has 200 employees.
So that leaves Metropolitan with no choice but to modify its loan, which matures in 2017. And here we fall into the Russian Roulette of real estate financing these days. The banks are trying to shed loans, not take on new and certainly do not want to re-negotiate to lower terms. Their goal is to increase reserves, not decrease, without getting the Feds on their case. So there you have it — a mess.
Reports indicate that Metropolitan’s net income in the Tower is short about 3 million.
The news even surprised George Roddy, president of Addison-based Foreclosure Listing Service. Roddy told the Dallas Morning News:
“I don’t think you can say that it means much of anything except for the fact that the commercial market has experienced a sluggishness in the last year or two,” he said. “Foreclosures have been up in the last year or two, and while they may have been leveling off, it doesn’t mean we’re out of the woods as it relates to commercial real estate.”
Commercial real estate foreclosure filings have been falling, down 3 percent from a year ago for the first five months of 2011. Compare that to a whopping 63 percent gain in the first five months of 2010. But we are in no way out of the woods, yet.
In 2007, Comerica Inc. relocated its corporate headquarters from Detroit to Dallas and Comerica occupies the first five floors of the 60-story granite skyscraper, hence the name change to the “Comerica Building.” It was originally called Bank One Center until JPMorgan Chase acquired the Bank One Corporation in 2004, then it was called Chase Center until Comerica came to town.