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Started By
Message
A debt 'time bomb' looms for New Orleans' downtown office market
Posted on 3/21/24 at 7:42 am
Posted on 3/21/24 at 7:42 am
LINK
quote:
The office market in New Orleans, which for years has been one of the sleepier corners of American urban real estate, faces a $400 million "time bomb" of debt that could force big changes in how many of the city's iconic downtown buildings are used in coming years.
The city's skyscrapers, many of which are arrayed along a mile-long stretch of Poydras Street in the Central Business District, are in a precarious situation, say local real estate watchers, with eight of the 15 largest carrying an unforgiving type of mortgage that will soon need to be refinanced.
According to Trepp, a New York-based firm that tracks real estate debt levels in cities across the U.S., all but one of the loans will need to be paid off or refinanced by early 2026. And one New Orleans skyscraper, the 39-floor Energy Centre at 1100 Poydras Street, already is delinquent after its $56.5 million mortgage came due last October. The owner, Los Angeles-based Hertz Investment Group, said it is currently in talks with the lender to avoid foreclosure.
quote:
"These guys are getting super crunched," said New Orleans real estate broker Parke McEnery. When mortgages come up for refinancing over the next year or two, the owners could face a doubling or more in their interest costs, assuming they can even find willing lenders, he said.
"Then the time bomb explodes," said McEnery.
7
Posted on 3/21/24 at 7:45 am to Major Dutch Schaefer
This could make the S&L crisis in the late 80s look like a popcorn fart.
Posted on 3/21/24 at 7:49 am to Major Dutch Schaefer
This is everywhere. CRE is in dire straights.
This is one of those scenarios where deflation is ultimately necessary, but the initial pain will hurt severely due to the debt relied upon.
This is one of those scenarios where deflation is ultimately necessary, but the initial pain will hurt severely due to the debt relied upon.
Posted on 3/21/24 at 7:54 am to SlowFlowPro
Not as many folks work in the office anymore. It’s a bad situation. Corporate realty used to be a strong asset. Not so much anymore.
Posted on 3/21/24 at 7:57 am to Ancient Astronaut
I'm no expert on CRE, but from what I've read/listened to, it seems like it's an industry that's developed really bad habits in how they engage day to day. Like a literal constant debt shuffle and re-negotiation but always carrying huge debt.
Posted on 3/21/24 at 7:58 am to Ancient Astronaut
Some of these will be flipped to apartments. Homeless Shelters and places for illegals.
Posted on 3/21/24 at 7:58 am to Major Dutch Schaefer
Why didn't they lock in a 30 year mortgage back when rates where low?
Posted on 3/21/24 at 8:02 am to Bazzatcha
Countrywide this poses a serious threat to lots of the banks. Many are holding a lot of commercial paper and when these losses have to get written down it will be a blood bath.
Posted on 3/21/24 at 8:04 am to Major Dutch Schaefer
Are these offices even at capacity? Who picked up the Shell lease on Poydras?
Posted on 3/21/24 at 8:06 am to udtiger
quote:
This could make the S&L crisis in the late 80s look like a popcorn fart.
Correct!
AND…this debt has been chopped up and marketed as derivative instruments as well, no?
Posted on 3/21/24 at 8:08 am to Warfox
quote:
AND…this debt has been chopped up and marketed as derivative instruments as well, no?
I don't think so, but someone can correct me.
These loans are renegotiated too often to be used in that way, I'd think.
Posted on 3/21/24 at 8:11 am to Major Dutch Schaefer
quote:
Energy Centre at 1100 Poydras Street
The “Premier Tenant” of that building is now Dudley Debossier. Just like the “Premier Tenant” of the PAN AM Building has for some time now been Morris Bart.
I’m not even trying to suggest the situation was much better when each building’s premier tenants were big defense firms - which each sort of supplanted. Just that it’s further evidence of how there’s really no chance of continuing to sustain such an office market in such a place long term from a general economics perspective.
Posted on 3/21/24 at 8:16 am to Y.A. Tittle
The funny part is law firms are 100% a company that doesn't require fancy buildings at all, but lawyers love them fricking fancy buildings.
Posted on 3/21/24 at 8:20 am to Bazzatcha
quote:
Why didn't they lock in a 30 year mortgage back when rates where low?
Because they dont have those terms for commercial for a majority of lenders
They are usually 5yrs
Posted on 3/21/24 at 8:23 am to SlowFlowPro
quote:
I'm no expert on CRE, but from what I've read/listened to, it seems like it's an industry that's developed really bad habits in how they engage day to day. Like a literal constant debt shuffle and re-negotiation but always carrying huge debt.
Most Lenders do a 5-year ballon note for commercial real estate, essentially requiring them to refinance every 5 years.
Posted on 3/21/24 at 8:25 am to TigerBlood17
I imagine that's going to change over the next few years 
Posted on 3/21/24 at 8:36 am to Ancient Astronaut
quote:
Not as many folks work in the office anymore. It’s a bad situation.
And the City of New Orleans is not helping. All of the tax credited low income housing inserted into the center of downtown has destroyed the cohesiveness of the Central Business District. People are leaving downtown because it is unclean, unsafe, and no longer the hub for doing business. The latest rumor is the old United Fruit Company building--situated in between Pan Am, Shell, and Place St. Charles and some upscale hotels--will be developed for low income housing. Plop that down in the middle of the CBD and those businesses that remain will be driven out.
This post was edited on 3/21/24 at 8:41 am
Posted on 3/21/24 at 8:44 am to Major Dutch Schaefer
Need to convert a bunch of empty office space into upscale condos/apartments. Attract some young professionals and people who want a condo downtown as a secondary residence. Demand for downtown office space will never be back to pre-covid levels
Posted on 3/21/24 at 8:59 am to SlowFlowPro
quote:
The funny part is law firms are 100% a company that doesn't require fancy buildings at all, but lawyers love them fricking fancy buildings.
Client's aren't hiring a law firm that has a shite office.
Perception matters.
Posted on 3/21/24 at 9:02 am to rltiger
quote:
Client's aren't hiring a law firm that has a shite office.
Eh...
This reminds me of what a judge from JP once told an attorney from Jones Walker trying to ask for 6-figures in attorney's fees ("Do you paint the walls with gold at Jones Walker?").
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