Hartford Business Journal

26 HARTFORDBUSINESS.COM | FEBRUARY 24, 2025 FOCUS | BANKING & FINANCE Some estimates say Hartford's downtown office availability rate is close to 40%. PHOTO | COSTAR Working It Out Landlords, lenders face complicated paths navigating Hartford's struggling office market that have lost significant value and are underwater. That's creating issues for both property owners and lenders. Webster Bank aims to help owners hang onto their assets when possible, said Jason Soto, an executive vice president and chief credit officer at the Stamford-based regional bank, which has $79 billion in assets. He said Webster recently extended and adjusted the terms of a loan for an under-construction office building because the owners were willing to invest several million dollars in additional equity into amenities. In the right situation, Webster might be willing to help owners convert office buildings into apartments, Soto said. "We fundamentally want to assist in these situations where there is a good strategy to make a property successful and have cooperative owners," Soto said. When properties have gone under- water, and values are unlikely to rebound or owners are unwilling to invest, Webster has sold off loans, Soto said. Webster Bank has cut its office loan portfolio by half, to $825 million, over the past two-and-a-half years "using a variety of measures," he said. "The reality is properties need to be taken out of the market, they need to be upgraded and then, hopefully, you will start to get some tailwinds, which you are starting to see from more employers calling more employees into the office more days of the week," Soto said. Webster is currently foreclosing on the 12-story, 293,639-square- foot Metro Center office building in downtown Hartford, at 350 Church St., and a neighboring parking garage. The current owner, Shelbourne Global Solutions, bought the properties for $49 million in 2017, as values were recovering from the Great Recession of 2008. Shelbourne, Hartford's largest landlord, is also facing foreclosure on its 23-story, 419,612-square-foot "Stilts Building" office tower at 20 Church St. Michael Seidenfeld, Shelbourne's chief operating officer, said the realignment of work patterns and office demand following the pandemic makes the current office market downturn different and more troublesome than past cycles. He said the Metro Center receiv- ership is standard procedure for owners unable to refinance. "A confluence of factors has created the conditions for this: the absence of any meaningful leasing activity in Hartford's office market, downtown's 40% office space vacancy rate, and the total freeze of the capital markets," Seidenfeld said. "Unfortunately, some banks By Michael Puffer mpuffer@hartfordbusiness.com I n another sign of trouble for downtown Hartford's office market, M&T Bank is trying to sell a $28.25 million mortgage loan secured by the 30-story Goodwin Square office tower, at 225 Asylum St. The entity that owns the 340,247-square-foot building — a limited liability company tied to Westport Capital Partners — is current on its loan payments but not willing to invest in tenant improve- ments or brokerage fees to recruit tenants going forward, according to a marketing brochure circulated by real estate services firm Newmark. The building is currently 76.1% leased, and the loan comes due in January 2026, according to the brochure. The attempt to sell Goodwin Square's debt is the latest in a series of dramatic moves by lenders dealing with the drop-off in demand for down- town Hartford office space, and an accompanying spiral of office values. At least four of the city's class A office towers are being managed by court-appointed receivers, with three of those properties also facing foreclosure. A deeper hole Some experts estimate nearly 40% of downtown Hartford's office space is available, counting existing vacan- cies and tenants that are expected to downsize when their leases expire in the near term. Downtown Hartford — which has an estimated 7.4 million square feet of central business district office space, according to Cushman & Wakefield — has been through past cycles of collapsing office values, which has typically resulted in a wave of foreclo- sures and ownership changes before a rebound occurs. Brokers, bankers and other experts see a stiffer challenge this time around, given Hartford's weakening status as a corporate stronghold and the wider acceptance of hybrid and remote work. Chris Ostop, managing director of JLL Connecticut, is convinced new buyers will step forward for some of the distressed buildings, but he isn't sure there will be enough tenant demand to go around. "It's hard to predict, but I'm not sure there's enough demand for all of the buildings to get their" vacancy rates back to normal levels, he said. Insurers and other corporate employers have shrunk their pres- ence in the city, and Connecticut in general, and Hartford in particular, have not had great success attracting new busi- nesses capable of backfilling large chunks of empty office space, experts said. "We didn't have the kind of high-30s vacancy rate we have in the market now, with no real hope on the horizon for a big, white knight coming to save us," said Andrew Filler, a prin- cipal with real estate services firm Avison Young. The prevalence of commercial mortgage-backed securities loans will also reduce the prospects of negotiating debt out of foreclosure, Filler said. David Fagone, who recently stepped down as CEO of real estate services firm RM Bradley Manage- ment Corp., said he worries flagging office space demand could lead to a "race-to-the-bottom," as remaining landlords accept lower rents and steeper losses to fill buildings. While rents haven't yet gone down, they have essentially remained flat since 1985, he said. The average asking rent for Hart- ford class A office towers was $23.91 per square foot in the fourth quarter of 2024, Cushman & Wakefield data shows. "I don't know the remedy," Fagone said. "Some of it will be market forces — some building maybe gets shuttered and comes off the leased market for some period of time until somebody has a vision that perhaps the rest of us don't have." Blunting the impact Adding to landlords' challenges is the inability to refinance maturing office loans, especially for properties HARTFORD CLASS A OFFICE TOWER FORECLOSURES, RECEIVERSHIPS AND MORTGAGE SALES • CITY PLACE I (185 Asylum St.): Court-appointed receiver • GOODWIN SQUARE (225 Asylum St.): Mortgage loan for sale • STILTS BUILDING (20 Church St.): Court-appointed receiver, foreclosure • METRO CENTER (350 Church St.): Court-appointed receiver, foreclosure • CONSTITUTION PLAZA: Court-appointed receiver, foreclosure Jason Soto Chris Ostop

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