A distressed office building in Houston’s Galleria area finally secured a lifeline after being threatened with foreclosure for over a year.
The $68.8 million CMBS loan backed by One Riverway has been modified after it was transferred to special servicing two years ago, Morningstar Credit reported. The deal reached by landlord Unilev and Deutsche Bank subsidiary German American Capital Corp. was finalized April 30 and includes a 36-month extension.
The 508,000-square-foot office building, at 1 Riverway Drive, was built in 1978 and renovated in 2020. It’s 51 percent occupied, the special servicer wrote.
One Riverway has appeared on the foreclosure auction list in Harris County every month since April of last year, but it didn’t sell. Bisnow reported on a potential loan workout in October.
German American Capital Corporation provided an $80 million mortgage for the 25-story property in 2015, the same year a CMBS trust acquired the loan. It was 89 percent occupied when the loan originated, the Houston Business Journal reported. The rate fell to its current level when several major tenants moved.
The flight to quality trend as well as changing norms regarding remote work have destabilized Houston’s office market, leaving older buildings like One Riverway particularly vulnerable.
Vacancy in Houston’s office market was 25.8 percent in the first quarter, according to the Greater Houston Partnership using data from CoStar.
But, the construction pipeline is thinning out, with 2 million square feet of space under construction in the first quarter; the 10-year average is 4.1 million square feet. Experts expect the clearing out of the pipeline will cut into stubborn vacancy rates.
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