Pittsburgh Buildings Facing Possible Foreclosures
The K&L Gates Center in Downtown Pittsburgh is on the verge of being sold as its owner has agreed to a foreclosure initiated by its lender. This highlights the ongoing challenges faced by Pittsburgh buildings facing possible foreclosures.
Judge John McVay of the Allegheny County Common Pleas Court signed an order on Jan. 30, ruling in favor of a mortgage foreclosure totaling $58.9 million against One Oliver Associates Limited Partnership which is the building’s owner.
Pacific Life Insurance, the lender, filed a complaint in December alleging that One Oliver Associates defaulted on a $78 million loan by failing to pay the remaining $59.1 million by the maturity date of Dec. 1, 2023.
According to the mortgage foreclosure complaint, One Oliver Associates secured a $78 million commercial mortgage loan from Pacific Life in December 2012, using the building as collateral. The owner defaulted by failing to make the $59.1 million payment by the December 2023 maturity date, granting Pacific Life the power to foreclose.
Jonathan Kamin, a Downtown real estate attorney, highlighted two potential outcomes: the owner transferring the property to Pacific Life through a deed in lieu of foreclosure, or a sheriff’s sale.
These actions come amid growing concerns about defaults and foreclosures in Pittsburgh and elsewhere, fueled by high office vacancies resulting from the COVID-19 pandemic and hybrid places.
Some building owners are voluntarily surrendering their properties to lenders instead of going through foreclosure, according to commercial real estate information company CoStar.
The occupancy rate of the K&L Gates Center at 210 Sixth Ave. currently stands at roughly 78%. The larger issue is it risks losing its anchor tenant the K&L Gates law firm as their lease is set to expire this year.
The Grant Building in Downtown Pittsburgh Buildings Facing Possible Foreclosure Due to Loan Defaults
In January, a lender initiated foreclosure proceedings against McKnight Realty Partners who is the operator of the iconic 37-story Grant Building. The action was prompted by allegations of a default on a $38 million loan, partly attributed to the failure to extend or renew the lease of Huntington National Bank, a pivotal tenant.
Why are Pittsburgh Buildings Facing Possible Foreclosures
Hybrid Workforce: The shift towards remote work which was accelerated by the pandemic has reduced the need for physical office space for many businesses. This has lead to decreased demand for office space and large financial burdens for commercial building owners.
Major Anchor Tenants Leaving: If a major tenant leaves an office building without a replacement it can significantly impact a commercial building’s cashflow and potentially lead to foreclosure if the owner is unable to secure new tenants.
High Operating Costs: Rising operating costs, such as maintenance, materials and insurance can strain the financials of building owners especially if rental income is insufficient to cover the expenses.
What is the Solution to the Possible Foreclosures?
For months, Jones Lang LaSalle (JLL) has advocated for a reimagining of Downtown, envisioning fewer office buildings and more residential and retail spaces. The challenges faced by the K&L Gates Center and the Grant Building are part of this inevitable transformation.
While acknowledging the economic challenges posed by tighter lending standards and high interest rates, Mr. Adamski emphasized the necessity of rebalancing the Downtown commercial mix for a more vibrant future.
Repositioning and Repurposing: Assess whether the property can be repositioned or repurposed to better meet current market demands. This might involve converting office space into residential units, mixed-use developments, or alternative commercial uses such as co-working spaces.
Government Assistance Programs: Explore government assistance programs or incentives aimed at revitalizing commercial properties and stimulating economic development. This might include tax incentives, grants, or low-interest loans for property rehabilitation, redevelopment, or adaptive reuse projects.
Teardown and Rebuild: Some buildings might have met their useful life which means a full demolish and rebuild. This can sound extreme, however, some of the older structures might not have the ability to be repositioned which leads to alternative routes.
In short, we live in a post pandemic economy meaning the hybrid workforce is here to stay. This is affecting all major cities not just Pittsburgh, so it’s time to reinvent ourselves!
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