U.S. Steel building owner tries refinancing
With a Sept. 9 payment on its debt past due, the majority owner of the U.S. Steel Tower, Downtown, is seeking to refinance its debt -- with the possibility of a foreclosure if tight credit markets persist, experts said.
Area Property Partners, which until last year was known as Apollo Real Estate Advisors, said it is negotiating with several lenders on refinancing more than $200 million in debt on the U.S. Steel Tower, the largest office tower between New York and Chicago.
A report from Fitch Ratings listed mortgage debt at $145 million. When other debts for subordinate and mezzanine loans are included, the total reaches $203.8 million.
Area Property would not confirm those numbers, saying in a statement that USX Tower has never defaulted on its interest payments and has simply requested a modest amount of time from its lender to complete the refinancing.
"We are working with our lenders to grant us this short extension, and we remain in close discussions with them while continuing to pursue the refinancing," the statement read.
Bank of America holds the largest loan on the property. Spokeswoman Danielle Robinson declined to comment.
"The lender has several recourses in order to obtain, reduce or eliminate the debt," said attorney Alan Gordon, a partner and head of the Real Estate Group at McGuireWoods in Pittsburgh. "It can sell the (debt) at a discount, either separately or package it with other debts. There are organizations and individuals who buy discount paper. The lender also can foreclose on the property, then buy back the note, but lenders generally do not like to own the property.
"It is tough to refinance larger properties in today's market, but it is possible, depending on the cash flow and the occupancy," he said.
Nick Matt, senior vice president at CB Richard Ellis in Pittsburgh, said there are many defaults occurring today.
"Lenders are working with their borrowers, giving them more time to get their financing in place, and deals involving large properties are taking longer as credit remains tight," Matt said.
The loan's original maturity date was Sept. 9, 2007, with three one-year extension options. Area Property exercised the three extension options until the loan matured on Sept. 9, 2010, according to Fitch Ratings. Fitch said in its report on the Bank of America loan that it expects if credit market conditions persist, the loan could default, as it does not pass Fitch's refinance test.
The 64-story building -- the tallest in Pittsburgh -- has 2.3 million square feet of space.
The tower's largest tenants include the University of Pittsburgh Medical Center, whose lease expires March 1, 2030, which was leasing 66,672 square feet of additional space this year; U.S. Steel Corp., the building's longtime name tenant, whose lease expires Sept. 30, 2017; and PNC Bank, whose lease expires Dec. 31, 2013.
As of the end of 2009, the average in-place rent was about $20.44 per square foot, and the property was 88.4 percent occupied, Fitch said. Andrew Wisniewski of CB Richard Ellis, leasing agent for the building, said the tower's occupancy is 96 percent.
