The Poydras Street Energy Center, the fourth largest office skyscraper in New Orleans, has a new owner after it was foreclosed on by lenders to Hertz Investment Group, which was unable to negotiate new financing. .
New York City-based real estate firm Triangle Capital Group took over the 39-story building in early November after negotiating with the lender that foreclosed on the building in August. More than a year ago, Hertz defaulted on its $56.5 million mortgage as it came due and was unable to negotiate new financing terms.
The selling price has not been disclosed.
Wednesday, Nov. 13, 2024, at the Energy Center building in downtown New Orleans. (Photo by Chris Granger, The Times-Picayune)
Hertz, based in Woodland Hills, Calif., has been emblematic of the slow-burning financial crisis hitting office tower owners across the country. A loss of tenants due to the coronavirus pandemic, along with higher mortgage rates and other costs, are forcing many property owners to restructure their debts or foreclose.
Zev Hertz, CEO of Hertz Investment Group, did not respond to a request for comment. Hertz hired Dallas-based Gillies Capital Group in September to help restructure its debt and negotiate new terms for financing the office building. Gilles did not immediately respond to a request for comment.
small market
Hertz specializes in owning office towers in small and medium-sized cities such as St. Louis, Jackson, and New Orleans, Mississippi. The company has transferred control of more than a dozen of its 56 office buildings in the past year.
Before the acquisition, Hertz owned five of New Orleans’ 15 luxury commercial office properties, known as Class A office towers, including the Energy Center. All had taken out a type of bond financing that could be particularly at risk of foreclosure.
The energy center is notable for being one of the city’s best-performing office towers, with approximately 90% occupancy and tenants including LCMC Health, law firm Chaffe McCall, and Morgan Stanley Wealth. Contains management offices.
“We’ve had great tenants and it’s not a run-down property,” said Mike Siegel, CEO of Corporate Realty, a real estate management and brokerage firm owned by Gail Benson. Corporate Realty was brought in by the lender in March to manage the building. “It’s just that the capital markets have suffered.”
Triangle Capital retained Corporate Realty to continue operating the building, Siegel said.
In addition to being nearly fully occupied, the building’s value far exceeds its outstanding debt, according to Trepp, which tracks commercial real estate transactions. Trepp said the most recent appraisal this year valued the building at $92.6 million, while the outstanding debt at the time was about $64 million.
This is in contrast to DXC Technology Center, another office tower on Poydras Street that was foreclosed on earlier this year. The sale price was $18.5 million, far less than the $30.2 million in debt.
“Energy Center probably has the highest capital value of any office tower in the city,” said Christopher Dozier of commercial real estate consultant Union Advisory Group. “Due to debt burdens, some buildings have zero or less than zero equity.”
Still, Hertz was unable to negotiate a new contract because the lender lost confidence, Dozier said.
That includes Israeli bonds that voted in October to immediately repay about $168 million secured by 15 Hertz buildings, according to filings with the Tel Aviv Stock Exchange, where the bonds are listed. Groups of holders are also included.
Bondholders also expect to receive proceeds from the sale of land associated with the former Hertz-owned Capital One Tower in Lake Charles. The tower was demolished in September after it was deemed beyond repair due to damage sustained by Hurricane Laura. Another Hertz-owned building in Louisiana facing financial difficulties is Regions Tower in Shreveport, where creditors filed a lien in September.
After the shell?
The biggest question for the Hearts in New Orleans right now is the fate of the state’s largest skyscraper, the Hancock Whitney Center, formerly known as One Shell Square.
Shell, which once occupied more than 1 million square feet, will vacate its current 330,000-square-foot site and move into a new taxpayer-subsidized 142,000-square-foot building in the River District. The building will lose one of its largest tenants. End of 2026.
Shell’s exit is preceded by the July maturity of $108 million in bonds secured by the building. The building’s occupancy rate, currently at about 80%, is expected to drop to about 55% with Shell’s departure, according to debt rating agency Fitch, which placed the debt on “negative watch” on Tuesday.
