Lenders have flagged a North Texas office complex over failed debt payments.
The Colonnade office complex in Addison was recently placed under “special servicing” by lenders after Brooklyn-based developer Fortis Property Group LLC indicated that it could no longer service its debt obligations on the property, according to a report by Morningstar Credit analysts.
Built in the 1980s, the Colonnade consists of three office buildings spanning approximately 1 million square feet. The office complex — located at 15305 Dallas Parkway in Addison — is linked by a retail atrium passageway and is 75% leased.
The reason the office complex was transferred to special servicing was due to “imminent monetary default,” according to Morningstar Credit, per The Real Deal.
During the 2019 loan issuance, Fortis received about $223 million in financing, not including mezzanine debt. However, with a maturity date of February 2024, Fortis indicated it could not meet its servicing obligation in time. This caused Fortis to default on approximately $17 million in mezzanine loan in September.
The Dallas Express reached out to Fortis Property Group for comment about being placed in special servicing but did not hear back by press time.
Record-high interest rates are the main cause of commercial loan defaults in 2023, according to Charles DiRocco, director of real estate research at Dallas-based accounting firm PricewaterhouseCoopers.
“There is a new sheriff in town, and it’s interest rates,” DiRocco said, per The Dallas Morning News.
“In commercial real estate, [interest rates make investing] a lot more of a challenge,” said DiRocco. That is why commercial real estate debt is not only the talk of the industry right now, it is the talk of the economy, he explained.
The Colonnade is just one of several Dallas-area properties currently facing the risk of default, as previously reported by The Dallas Express.
Dallas’ Uptown Tower, formerly known as Amberton Tower, is one such property that recently went into default. The property owner blamed stricter lending standards from banks and skyrocketing interest rates imposed by the Fed for the $14 million commercial loan default.
Federal Open Market Committee participants have penciled in one more 25-basis-point rate increase for December and additional policy firming in 2024. This means commercial debt problems could linger through 2025.