Brazilian retail mogul Michael Klein's grip on an Atlanta office building could be loosening after falling into delinquency on the building's mortgage.
The eight-story The Landings at Hapeville, whose loan is under special servicing.
An entity controlled by the CEO of Brazilian department store chain Casas Bahia is delinquent on the $20.3M loan tied to The Landings at Hapeville, a five-story, 336K SF suburban office property close to Hartsfield-Jackson International Airport, according to the Morningstar Credit database.
The CMBS loan has been transferred to a special servicer, tasked with working out the troubled debt on behalf of the investors in the debt. The loan, which has a current balance of $16.4M, according to Morningstar, is scheduled to mature on Feb. 6.
The mortgage was taken out in January 2015 by EK 2013 Family Trust, an entity described in a prospectus filed with the Securities and Exchange Commission that year as set up for Klein’s sister, Eva Klein, in 2013 after he took his retail empire public but spun out its commercial real estate operations.
At the time, the Kleins controlled a 422-property portfolio encompassing 22.8M SF, according to the loan prospectus. They financed a 1.6M SF portfolio of six office buildings throughout the Southeast that were fully occupied by Wells Fargo with a $95M loan sold into the COMM 2015-CCRE22 CMBS trust.
The Landings, two connected buildings located at 3585 Atlanta Ave., was built in 1987 for the banking giant. In 2014, Klein affiliate Mikeone EK ATL Ops Center LLC purchased the building and its 750-space surface parking lot for $33.5M, according to Fulton County records.
At the time, Wells Fargo had a lease for 100% of the building that ran through September 2024. But in 2017, Wells Fargo cut its lease size by more than 145K SF and cut a deal to slash its rent payments for the remaining space, which pummeled The Landings’ bottom line.
By the end of 2022, The Landing’s net cash flow was in the red by more than $1.2M, according to Morningstar. As of September, the net cash flow was tracking at negative $664K.
According to Fulton County records, the building’s appraised value dropped 72% to $11.75M between 2023 and 2024.
CP Group manages The Landings for Klein. Giana Pacinelli, a spokesperson for CP Group, declined to comment on behalf of the building's ownership.
With The Landings most recently reported at 48% occupancy, the landlord is struggling to find tenants to backfill its empty spaces — a common problem facing many suburban Atlanta office buildings.
"Ownership has an aggressive Brokerage team that is actively conducting tours of the vacancies along with other pitching to attract potential tenants,” the loan's master servicer wrote in watchlist commentary in November. “Borrower advised that a couple of tours were given. No real feedback to their proposals at this time.”
Special servicer LNR was appointed last month and wrote in an update that the borrower was delinquent on November and December payments. It is unclear what the workout strategy will be for the loan.
The Kleins are also facing distress in other parts of their portfolio. In July, a $63.6M loan backed by a 191K SF office building on M Street in Washington, D.C., fell into special servicing after the trust ceased making interest payments that summer, Bisnow reported.
More U.S. office owners are in trouble with their office loans as interest rates have stayed high and demand for all but the highest-quality buildings has been low. Roughly 11% of CMBS office loans were delinquent last month, the highest figure on record, according to Trepp.
In Metro Atlanta, nine CMBS loans tied to office buildings are in special servicing, totaling nearly $248M in value, according to Morningstar.
UPDATE, JAN. 15, 3:30 P.M. ET: This story has been updated to reflect that CP Group manages The Landings on behalf of the buildings' ownership.