The $71.6 million loan on the Columbus Center office complex in Coral Gables entered special servicing, according to data from Morningstar Credit.
The troubled loan is the latest sign that South Florida real estate is feeling the sting from elevated interest rates and other economic headwinds. Although the industry has cited the tri-county regional office market’s resilience due to an influx of out-of-state companies over the past four years, holes have appeared in this narrative showing the leasing flurry has slowed and landlords aren’t immune to debt woes.
Columbus Center’s loan was moved to special servicing in March after the landlord failed to renew an interest rate cap for the floating-rate debt, resulting in a default under the loan agreement, according to Morningstar Credit. A cap is a hedge against rate increases.
The 262,000-square-foot Columbus Center, majority owned by San Antonio, Texas-based Affinius Capital, consists of the 14-story East Tower and the eight-story West Tower at 1 Alhambra Plaza, records show.
Columbus Center’s default accelerated the loan, according to Morningstar Credit, meaning Affinius is on the hook for the entire remaining principal. Columbus Center also has struggled with vacancies and cash flow, with the complex’s occupancy hitting 62 percent at the end of last year and the loan’s debt service coverage ratio at 0.55. (A debt service coverage ratio, or DSCR, of 1 is the breakeven threshold for cash flow to cover loan payments.)
Tenants include IBM, First Horizon, Charles Schwab, Stiberman Law, jewelry buyer Diamond Banc and Bay 13 Brewery and Kitchen in the retail space.
Columbus Center’s net operating income at the end of last year was $3.8 million, Morningstar Credit shows.
Affinius and Houston-based Patrinely, which manages the property, didn’t return a request for comment.
Affinius’ inability to renew the interest rate cap comes as the price for this type of hedge has skyrocketed. Landlords usually purchase a cap when they first borrow a loan due to lenders’ preference to have an assurance that the debt won’t default if interest rates soar. The cap ensures the borrower doesn’t pay interest over a certain threshold, even if rates rise.
The Federal Reserve increased interest rates 11 times in 2022 and last year, resulting in the highest rates in more than two decades. The price of caps also increases as rates rise because their cost is tied to the Secured Overnight Financing Rate.
In 2020, a cap on a $125 million loan cost about $50,000, and it now could reach $3 million, an expert has previously told The Real Deal.
USAA Real Estate, the real estate arm of United Services Automobile Association, completed Columbus Center in 1990, according to records. USAA Real Estate had paid $10.7 million for the 2.5-acre site in 1989. Patrinely is listed as a co-developer in Morningstar’s data.
Affinius is the brand name USAA Real Estate adopted last year after its acquisition of Square Mile Capital. Len O’Donnell is CEO of Affinius.
USAA Real Estate refinanced several times the original loan on Columbus Center, including once with the Teachers Insurance and Annuity Association and then with Metropolitan Life Insurance Company, records show. In 2020, USAA refinanced a $57 million Metropolitan Life loan with Minneapolis-based global alternative investment management firm Värde Partners, which boosted the debt to $71.6 million, according to records.
The debt is securitized as part of Värde’s $927.9 million VMC Finance 2021-FL4 collateralized loan obligation, or CLO, deal, Morningstar shows. Värde did not respond to an email requesting comment.
USAA Real Estate and Patrinely pumped $10 million in renovations to Columbus Center in the decade between 2012 and 2022, according to Morningstar. A news release issued last year announcing the completion of capital improvements, including to the first-floor lobby, sixth-floor terrace and exterior façade also said up to 60,000 square feet is up for grabs at the West Tower.
In other South Florida office distress, the loan on the 28-story One Financial Plaza tower at 100 Southeast Third Avenue in Fort Lauderdale went into special servicing in February due to a default on its maturity date, Commercial Observer reported. The landlord, Alliance HP, had a one-year extension option, but lenders sometimes want owners to pay down a portion of a loan’s balance before they allow an extension. The floating-rate One Financial Plaza loan also is part of Värde’s $927.9 million VMC Finance 2021-FL4 CLO deal.
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