The renovated office tower on 960 Main St. has enjoyed strong occupancy rates, positive cash flow, and a loyal tenant base in recent years serving as a breath of fresh air in downtown Hartford’s dormant commercial real estate scene.
But that doesn’t mean the building isn’t facing challenges. In fact, its owners have recently hit a financial stumbling block.
The $25 million mortgage taken out on the office space portion of the historic building is in maturity default.
The loan matured in September and the building’s owners have failed to pay off or refinance the $23.5 million balance, according to Trepp LLC, a New York-based research firm that tracks commercial mortgage-backed securities.
The loan, which has been securitized and sold to investors, has been transferred to a special servicer, a company that deals with problem loans by restructuring payments or pursuing foreclosure, among other possibilities.
Anthony D. Autorino, whose firm Hartford Downtown Revival LLC owns the majority of the property, downplayed the significance of the default.
Autorino said his firm was given an extension on the loan and is in the process of trying to refinance the mortgage.
And although commercial mortgage refinancing has become much more complicated in the wake of the 2008 financial crisis — especially as many commercial building values have declined significantly — Autorino said he is confident they will be able to refinance the loan and maintain control of the property.
Hartford Downtown Revival is working with two banks and another financial institution to get a deal done, Autorino said.
“We are looking at various sources to refinance,” Autorino said.
The office and retail complex at 960 Main St. is a historic landmark in downtown Hartford and was a key part of former Gov. John Rowland’s “Six Pillars” plan for redeveloping the central business district.
The building, built in the early 1900s, was formerly home to the G. Fox & Co. department store until it closed in 1993, an event that dealt a major blow to the city’s retail scene.
After the closure, the building stood vacant for nearly a decade until the state stepped in and formed a unique private-public partnership with a group of investors led by Autorino to buy the building in 2000.
Autorino’s partnership, Hartford Downtown Revival, paid $2.5 million to own 60 percent of the building, while the state paid $1.7 million for space that now houses Capital Community College.
Autorino said Hartford Downtown Revival invested $48 million to completely rehab its portion of the property, while maintaining some of its historic features including its well-known art deco appearance.
The privately owned portion of the building is a mixed-use commercial property, with retail and office space, as well as meeting facilities.
The $25 million mortgage was taken out only on the 255,643 square feet of office space, which Autorino said has performed well financially.
The office portion of the building, which takes up floors two thru 11, is about 80 percent occupied and cash flow positive, Autorino said. In addition, almost all major tenants, except the Social Security Administration, renewed their leases in the past 14 months.
The building’s other major tenants include the State Department of Insurance, Hartford Public Schools, several telecommunications companies including AT&T and Comcast, and other state agencies.
“From an office point of view we are doing fine,” Autorino said.
Retail, however, is another story. Empty storefronts are clearly visible on the first floor and ground level of the building. Autorino said a lack of weekend foot traffic has made it difficult to attract tenants, which has made the retail portion of the property a money loser.
He said they have gotten recent interest from nontraditional retail tenants to fill some of the empty space including professional services firms.
The fact that about 6,600 people walk through the building each day during the week should spur more retail activity, Autorino said, but it hasn’t happened yet.
One area that has had success, however, is attracting corporate events and weddings. Marquee Events & Catering, which uses the Gershon Room, Mezzanine, and The Atrium for its special events business, attracted 42 weddings to the building in 2010, and is gaining more corporate events as well, Autorino said.
In terms of the building’s finances, Autorino said they originally took out a $32 million mortgage to finance the overhaul and renovation of the property.
In 2006, they refinanced the initial loan lowering the interest rate and paying off some of the principal, leaving them $25 million in debt.
As part of that refinancing, the owners also split the building into an office condo and a retail condo, separating the building’s mostly occupied office space from its languishing retail space.
That could be a key factor in allowing the company to refinance its debt successfully because the mortgage is only on the office space, which has strong occupancy and long-term leases. That should make it more attractive in the eyes of bankers.
But refinancing commercial mortgages in today’s economic climate is no easy task.
Risk averse lenders are scrutinizing deals much closer and property owners who are facing an impending maturity date on a mortgage could have a difficult time refinancing, especially if their building has lost value putting the mortgage underwater, meaning the value of the loan exceeds the value of the property.
That’s what happened to Northland Investment Corp. which has already lost one of its downtown Hartford properties to foreclosure, and risks losing two others.
To make matters more complex, many commercial loans have been securitized and sold to investors, a process that makes it much more difficult to renegotiate the mortgage when it comes due.
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