Historic Office Building In Philly's Center City In Special Servicing, On Track For Foreclosure
Another Center City office building is in special servicing and heading toward what looks to be an inevitable foreclosure.
The Widener Building, an 18-story, 458K SF office tower built in 1915, hit special servicing in January after its loan matured in December without being repaid, Fitch Ratings reports. The loan, part of a three-building commercial mortgage-backed security, has been dual-tracked for foreclosure and maturity extension by the special servicer.
Owned by a joint venture of two LLCs, the building is 90% occupied but is set to drop to 75% when law firm Rawle & Henderson's lease expires this month, Fitch reports. The loan's original sponsor is Abraham Leser of Brooklyn-based The Leser Group, according to the CMBS' initial SEC filing.
Rawle is vacating nearly 70K SF on floors 15, 16 and 17 to move to a 36K SF office at 1500 Market St., subleasing a portion of what insurance firm Radian vacated when it moved to the suburbs in 2021, the Philadelphia Business Journal reports.
The Widener Building had a net operating income 1.63 times its debt service payments at the end of last year, a drop from a 1.81 debt service coverage ratio at the end of 2020. The loan's original balance was $59M against an appraised value of $79M when it was originated in 2012, according to the SEC filing.
With Rawle's departure taking another chunk out of its cash flow and an estimated cap rate of 12%, the building has lost an estimated 15.5% of its value, Fitch reports. Fitch estimates the building to be worth $87 per SF, or under $40M. Philly's Office of Property Assessment valued the property at $85M this year.
At the southeast corner of Penn Square, which encircles Philadelphia City Hall, the Widener Building abuts the rear of One South Broad, a 464K SF office building of similar vintage that hit special servicing in September. It sits across a narrow alley from the 1.4M SF Wanamaker Building, which is on credit watch lists with a suspected loan-to-value ratio over 100%. Across Penn Square, 1500 Market is similarly underwater.
While a maturity extension is still possible, market conditions make foreclosure the more likely conclusion. As in major cities all over the country, Class-A office buildings with maturing debt and declining occupancy are in a no-win scenario bordering on crisis as long as interest rates are high and banks are wobbling. JPMorgan Chase predicts as much as $39B worth of office-backed CMBS loans could default this year.
A decision may rapidly be approaching for the Widener Building's owner on whether to succumb to foreclosure. That owner may be Leser and/or veteran Philly investor Jeffrey Kelter, though the ownership structure makes that difficult to confirm.
As of 2012, that structure included a second independent director who went unnamed on the SEC filing. Kelter purchased the building some years ago, according to a 2017 Real Estate New Jersey article.
City property records identify the owner as Chestnut Street Realty Limited Partnership, with its mailing address belonging to KTR. Chestnut Street is one of two LLCs listed as tenants-in-common on the filing, the other being Widener Partner L.P. The most recent sale of the building in city records was a $1 transfer from a Widener Associates LP to Chestnut Street in 2005.
The Widener Building and One South Broad share a management company, whose voicemail message identifies itself as PSP Management. That company was called KTR Management Services as recently as 2015.
An information page for Widener Partners on business information database Buzzfile lists Kelter as the company contact; the number listed on the Buzzfile page is the same as PSP Management.
The CMBS containing the Widener Building's loan initially contained 43 loans worth over $1.1B when it was securitized in 2012, Fitch reports. Nearly 60% of the security's remaining value is tied to the Eastview Mall and Commons in the suburbs of Rochester, New York, which has lost an estimated two-thirds of its value. The CMBS' remaining balance is $150M.
UPDATE, APRIL 4, 12:45 P.M. ET: This article has been updated to include additional information about the Widener Building's loan and its possible owner.
