Even Half-Off Discount Fails To Generate Foreclosure Buyer For Energy Corridor High-Rise
Pacific Life Insurance was apparently unable to find a buyer for the Houston office building it foreclosed on last week, even though it was willing to accept more than a 50% discount, public records show.
Pacific Life Insurance took back Four Westlake Park, a 588K SF, 20-story building in the Energy Corridor, for its starting bid of $30M after no one topped it at the Harris County foreclosure auction on Oct. 3, according to online records.
That is less than half of the $70M Pacific Life Insurance loaned to Treeview Real Estate Advisors to purchase the building in February 2020, and it is barely a third of the $86M at which the Harris Central Appraisal District valued the building in January.
Four Westlake Park is part of the 53-acre Westlake Park, home to BP’s North American headquarters at One Westlake Park. BP leased Four Westlake before placing the entire building up for sublease in July 2016. BP’s lease in the building was set to expire in June this year, Bisnow previously reported.
Technically, PL Four Westlake Owner, a limited liability company with the same address as Pacific Life Insurance, purchased the property for $30M, according to a trustee’s deed. But this doesn’t mean the lender will pay itself for the property, said Shams Merchant, an attorney for Jackson Walker LLP based in Fort Worth, speaking generally and not about this specific transaction.
“The lender usually buys back only when the price at foreclosure didn’t hit their minimum,” Merchant said by email. “So now, the lender can now turn around and sell the property in order to recoup some of their losses on the loan.”
Texas' property code requires the lender to allow third parties to purchase the property at a public foreclosure auction, but the lender usually sets the starting bid at what it is willing to accept to cut its losses, he said.
That appears to be the case in this sale, though Pacific Life Insurance didn't respond to a request for comment.
If no one outbids the lender, the property is deeded back to the lender, Merchant said. This foreclosure process wipes out any junior liens, so the “lender is able to get the property back free and clear,” he said — unless the lender wasn't the most senior lienholder. In that event, the property would still be subject to the senior lien.
The same process seems to have happened for several other recent commercial foreclosures in Houston, though the discount the lenders are willing to accept varies.
At the September foreclosure auction, lender MF1 sold a 282-unit multifamily complex, Aspire at 610, after its borrower defaulted on a $51M loan. Property records show that a newly formed LLC with the same address as Berkshire Residential Investments, part of a joint venture with Limekiln Real Estate that launched lending vehicle MF1, bought the complex for $49.8M, but Berkshire didn't respond to a request for comment.
Another multifamily complex, the 1,000-plus-unit Cabo San Lucas, sold at the August foreclosure auction to another newly created LLC for $50M. Ellington Management Group, which originally issued the $65.2M loan on the property, declined to comment on the sale or the identity behind the LLC, so it is unknown whether it also took back the property after failing to fetch an offer above its opening bid.
Houston office loan distress remains significant. CMBS loans on 26 properties with a collective loan balance of almost $973M are in distress, or about 23% of all office CMBS loans in Houston, according to a third-quarter Avison Young office report.
