The Energy Centre on Poydras Street, the fourth largest office skyscraper in New Orleans, has a new owner after lenders foreclosed on the Hertz Investment Group, which was unable to negotiate new financing.
Triangle Capital Group, a real estate firm headquartered in New York City, took over the 39-story building in early November after negotiating with lenders who had foreclosed on the building in August. Hertz defaulted just over a year ago when payments on the $56.5 million mortgage came due and it was unable to negotiate new financing terms.
The sale price was not disclosed.
Hertz, based in Woodland Hills, California, has been emblematic of a slow-burning financial crisis hitting owners of office towers across the country. Fewer tenants in the wake of the coronavirus pandemic, coupled with high mortgage rates and other rising costs, have pressed many property owners into debt restructurings or foreclosures.
Zev Hertz, CEO of Hertz Investment Group, didn’t respond to requests for comment. Hertz in September hired Dallas-based Giryes Capital Group to help restructure its debt and negotiate new terms on its office building financing. Giryes didn’t immediately respond to requests for comment.
Smaller markets
Hertz, has specialized in owning office towers in small and medium-sized cities, such as St. Louis and Jackson, Mississippi, as well as New Orleans. The company has ceded control of more than a dozen of its 56 office buildings over the past year.
Hertz owned five of New Orleans’ 15 high-end commercial office properties, known as Class A office towers, including the Energy Centre before it was taken over. All carried a type of bond financing that can leave them particularly vulnerable to foreclosure.
The Energy Centre is notable in that it is one of the best performing office towers in the city, with an occupancy rate of about 90% and tenants that include LCMC Health, the law firm Chaffe McCall and wealth management offices of Morgan Stanley.
“It has great tenants and it was never a distressed piece of real estate,” said Mike Siegel, CEO of Corporate Realty, the Gayle Benson-owned real estate management and brokerage firm brought in by lenders in March to manage the building. “It was only distressed in the capital markets.”
Triangle Capital retained Corporate Realty to keep running the building, Siegel said.
As well as being nearly fully occupied, the building is valued at well above the outstanding debt, according to Trepp, which tracks commercial real estate transactions. Trepp said the latest appraisal this year valued the building at $92.6 million, compared to outstanding debt at the time of about $64 million.
That contrasts with the DXC Technology Center, another Poydras Street office tower that was foreclosed on earlier this year. It sold for $18.5 million, far less than its debt of $30.2 million.
“The Energy Centre probably has the most equity of any office tower in the city,” said Christopher Dozier of Union Advisory Group, a commercial property consultant. “Some buildings have zero or less-than-zero equity because of the debt load.”
Still, Hertz wasn’t able to negotiate a new deal after lenders lost confidence, Dozier said.
This includes a group of bondholders in Israel who in October voted to call for the immediate repayment of about $168 million that was secured on 15 Hertz buildings, according to filings with the Tel Aviv Stock Exchange, where the bonds are listed.
The bondholders also are expecting to receive the proceeds of the sale of land associated with the formerly Hertz-owned Capital One Tower in Lake Charles, which was demolished in September after it was determined it could not be rehabilitated from damage sustained during Hurricane Laura. Another Hertz-owned building in Louisiana that is facing financial stress is Regions Tower in Shreveport, where liens were filed by creditors in September.
After Shell?
The biggest question now for Hertz in New Orleans is the fate of the Hancock Whitney Center, formerly known as One Shell Square, the largest skyscraper in the state.
The building will lose one of its biggest tenants when Shell — which once occupied more than 1 million square feet — vacates its current 330,000 square feet to move to a new, taxpayer-subsidized, 142,000-square-foot building in the River District by the end of 2026.
Shell’s departure will be preceded by the maturing in July of $108 million of bonds secured on the building. Occupancy on the building currently is about 80% but would drop to around 55% with the departure of Shell, according to the Fitch debt rating agency, which put the debt on “negative watch” on Tuesday.