3 well-known metro buildings in default
Article by: JENNIFER BJORHUS , Star Tribune Updated: August 20, 2010 - 11:22 PM
They include One Financial Plaza in Minneapolis and Hotel Sofitel in Bloomington. The owners are trying to restructure their debt.
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The owners of the Hotel Sofitel, the Minnesota Center and One Financial Plaza -- three well-known buildings in the Twin Cities -- are trying to restructure $88 million of outstanding debt after defaulting on loans.
The defaults are among the largest in the Twin Cities involving securitized commercial property debt, and such behind-the-scenes bargaining over past-due loans has become a hallmark of the commercial real estate crisis. Hotels have taken a clobbering, but there's plenty of distress to go around.
Borrowers owing $434 million were 60 days or more past due or in foreclosure on 42 commercial buildings across the Twin Cities as of Aug. 1, from shopping centers to office towers, according to data from commercial real estate researcher Trepp LLC in New York. That total counts only loans that were securitized -- bundled with other commercial property mortgages and sold to investors like bonds, much the same as residential mortgages.
That's a local delinquency rate of 8 percent for loans that were part of a commercial mortgage-backed security -- about double the 3.5 percent rate a year ago. The Twin Cities is roughly in line with national averages now and a year ago.
Because of a lag time in reporting after buildings go back to the lender, Trepp's loan numbers include debt on some buildings that lenders have already resold.
The Minnesota Center, a 14-floor chunky glass tower at 7760 France Av. S. in Bloomington, and One Financial Plaza, a 27-story tower at 120 S. 6th St. in downtown Minneapolis, are both owned by a real estate investment trust (REIT) near Dallas called Behringer Harvard REIT I.
The REIT has defaulted on a total of $70.4 million in loans on the two buildings, according to documents filed with the Securities and Exchange Commission earlier this month. About $43 million of that debt is an interest-only loan with a balloon payment obtained from Citigroup for One Financial Plaza in 2005, according to Trepp.
Jason Mattox, Behringer Harvard's chief administrative officer, said his company is in discussions with lenders on both properties and hasn't announced plans for either of them.
In its government filing, Behringer Harvard said it's working to either restructure the $70.4 million debt on the two buildings or pay it off at a discount. Foreclosure is possible, it added.
Behringer Harvard paid $64.2 million in 2005 for One Financial Plaza. It suffered a setback when a major tenant, accountants Deloitte & Touche, moved out in 2007, and the tower is about 58 percent leased, said George Janssen a broker with Transwestern, which handles the building's leasing. Key tenants include the Nilan Johnson Lewis law firm and ad agency Clarity Coverdale Fury.
The Minnesota Center is about 62 percent leased, according to the REIT's government filings. Behringer Harvard also owns Lawson Commons in downtown St. Paul, which is 99 percent leased.
Behringer Harvard REIT I is what's known as a private or unlisted REIT, a type that's considered riskier for investors because it's not traded on an exchange. It lost $89.7 million on revenue of $138 million in the quarter ended June 30, and has suffered widening annual losses since 2005.
The Hotel Sofitel, a luxury hotel built in the early 1970s, is in foreclosure. Its owner defaulted on the $18 million remainder of an interest only loan from Eurohypo, part of Germany's Commerzbank Group, according to Trepp.
Property records show the Sofitel, at 5601 W. 78th St., is owned by 78th Street Ownerco LLC, although the taxpayer appears to be Accor Business & Leisure North America, part of Accor SA in France, one of the world's largest hotel operators. Sofitel is Accor's luxury brand.
In 2006 Accor said it owned six U.S. Sofitel hotels, including the one in Bloomington, as part of a joint venture with Chicago-based GEM Realty Capital and a Goldman Sachs group called Whitehall Street Global Real Estate Limited Partnership.
Accor would only say it's the long-term manager of the Sofitel and has "no comment about the business of the property owner."
Mark Bernhardson, Bloomington's city manager, said he's aware of Sofitel's troubles. The hotel's debt matured at the same time as three other Sofitels across the country, he said.
"I don't know if they're in the same boat," he said.
Bernhardson said he doesn't expect anything dramatic to happen as a result of the restructuring.
"Commercial properties going through foreclosure are a different animal," he said. "It's generally in the lender's best interest to continue that operation."
Jennifer Bjorhus • 612-673-4683
Edina Galleria developer buys Sofitel hotel (Video)
Sep 30, 2013, 2:11pm CDT UPDATED: Oct 4, 2013, 3:56pm CDT
John Vomhof Jr.
Minneapolis / St. Paul Business Journal
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The Hotel Sofitel Minneapolis in Bloomington has been sold to WB Hotel Partners, an entity majority owned by Galleria mall developer Warren Beck, according to a source with knowledge of the deal who asked not to be named because they were not authorized to speak publicly.
Sofitel Luxury Hotels confirmed that the property changed hands last Wednesday, but provided few other details.
"While the new owners are considering rebranding the hotel, Sofitel will continue operating as it has been following the closing of the real estate transaction," the company said in a statement. "Sofitel has notified their employees at the hotel and is committed to facilitating a smooth transition with uninterrupted service to their guests."
The brand and management are expected to change over on Nov. 1, a source told the Minneapolis/St. Paul Business Journal.
With 282 rooms, Hotel Sofitel Minneapolis ranks No. 16 among the Business Journal's List of the largest Twin Cities hotels. It is the only Sofitel-branded hotel in Minnesota.
The seller, Addison, Texas-based Accor Business & Leisure North America, bought the hotel for $27.5 million in March 2006. Hennepin County valued the property at $15.7 million for property tax purposes.
Beck's Gabbert & Beck Inc. sold the Galleria last year to Houston-based Hines Global REIT Inc. for $127 million, but he still owns the attached 225-room Westin Edina Galleria under a separate business entity.
Beck and his father-in-law, Don Gabbert, developed the upscale Galleria shopping center around Gabberts Design Studio and Fine Furniture in 1974.
John Vomhof Jr. covers retail, hotels, sports business, advertising, public relations and media. He's also on the air on WCCO-AM 830 with Dave Lee daily at 8:45 a.m. and on Fox 9 TV Fridays at 5:30 a.m. & 6:30 a.m.
A Luxurious French Hotel in Minneapolis
5601 W 78th St., Bloomington MN 55439
Europe: 00 800 1610 1690
A luxurious hotel near the Minneapolis St. Paul International Airport, the Sofitel offers first-class accommodations to business and leisure travelers. Located in Bloomington, this high-end Minneapolis hotel is convenient to the Mall of America and many large corporations.
The stylish guestrooms at the Sofitel Minneapolis feature contemporary furnishings and amenities. These Minneapolis hotel rooms and suites boast plasma televisions, luxury bedding, walk-in rain showers, WiFi access, voicemail, safe deposit boxes, premium cable channels and pay-per-view movies. There are also extra large working areas in each room for the convenience of business travelers.
The Sofitel Hotel in Minneapolis is well known for its outstanding restaurants, Chez Colette and La Fougasse. Chez Colette, styled after a turn-of-the-century French brasserie, offers a menu filled with dishes displaying an innovative approach to refined French cuisine in Minneapolis; La Fougasse satisfies with the robust flavors of Mediterranean-inspired cuisine. The hotel is also home to Le Bar, a warm and attractive lounge suited for relaxing with a few cocktails and light fare.
A leading Minneapolis meeting venue, this luxury hotel offers over 10,000 square feet of flexible meeting space fit for social gatherings, meetings and even beautiful Minneapolis weddings. Smaller rooms are available for board meetings or more intimate gatherings, while largest room can accommodate up to 500 attendees. Available amenities for meetings at this Minneapolis hotel are wired Internet access, WiFi access, the services of an in-house audiovisual team and full use of the hotel’s business center.
WiFi wireless Internet access
Business center with support staff
Copy/print service available
Fax machine, Free fax to local numbers
Dry cleaning / Ironing
Overnight shoe shine
Babysitting on request
Gift shop/newspaper shop
Chez Colette French Restaurant
Le Bar Cocktail Lounge