Starwood Defaults On $213M Atlanta Office Loan

The first high-rise office building to rise in Atlanta's Buckhead financial district has run into financial trouble.

Owner Starwood Capital Group has defaulted on a $212.5M mortgage on Tower Place 100, the 614K SF, 29-story building at 3340 Peachtree Road, Bloomberg reports.

Starwood’s CMBS loan debt on the tower, built by the legendary Atlanta developer Charlie Ackerman in the 1970s matured on July 9, and Starwood failed to pay off the debt at maturity, Bloomberg reported, citing information from Computershare. Starwood has hired counsel and is negotiating an agreement, Bloomberg reported.

Starwood acquired Tower Place 100 in 2015 for $192M. The $212.5M loan was originated by Goldman Sachs in June 2018, valuing the building at $277M after when it was 87% occupied, according to Morningstar Credit. It was 62% leased at the end of 2022, with WeWork as its largest tenant.

The loan was initially set to mature in July 2021, and Starwood exercised both one-year extension options on the debt. The main culprit of the building's occupancy decrease was the departure of Catlin Inc. from its 39K SF lease, which expired last year, according to special servicer commentary in Morningstar Credit's CMBS database.

Starwood "held a sale process that launched in March and have received no verbal indications above the debt balance and all were financing contingent with no equity or debt in place," the special servicer wrote in commentary in May, according to Morningstar Credit.

A Starwood representative declined to comment.

The default joins a growing cascade of distress at office properties across the country as owners struggle to refinancing their debt amid a high-interest-rate environment and concerns about the effects of hybrid work.

Delinquency rates on CMBS office loans jumped 128 basis points to 4.2% in May, the first time those delinquencies were above 4% since 2018. Given that most CMBS financing is nonrecourse, landlords can simply walk away from properties without incurring major financial damages, Bloomberg reported. 

The world's two largest real estate owners, Brookfield and Blackstone, have walked away from office buildings in Los Angeles, Manhattan and Washington, D.C., in the past year, as have other large landlords like Related and RXR.