The Power Center on Poydras Street, New Orleans’ fourth-largest office skyscraper, has a new owner after lenders foreclosed on Hertz Investment Group, which was unable to negotiate new financing.
Triangle Capital Group, a New York City-based real estate firm, took over the 39-story building in early November after negotiations with lenders that had foreclosed on the building in August. Hertz went bankrupt just over a year ago when payments on its $56.5 million mortgage fell due and it was unable to negotiate new financing terms.
The sale price was not disclosed.
The Energy Center building in downtown New Orleans on Wednesday, Nov. 13, 2024. (Photo by Chris Granger, The Times-Picayune)
Hertz, based in Woodland Hills, Calif., has been emblematic of a slow-moving financial crisis that has hit office tower owners across the country. Fewer renters in the wake of the coronavirus pandemic, along with high mortgage rates and other rising costs, have pushed many property owners into debt restructuring or foreclosure.
Zev Hertz, CEO of Hertz Investment Group, did not respond to requests for comment. Hertz in September hired Dallas-based Giryes Capital Group to help restructure its debt and negotiate new terms for office construction financing. Giryes did not immediately respond to requests for comment.
Smaller markets
Hertz specializes in owning office towers in small and mid-sized cities, such as St. Louis and Jackson, Mississippi, as well as New Orleans. The company has relinquished control of more than a dozen of its 56 office buildings over the past year.
Hertz owned five of New Orleans’ 15 high-end commercial office properties, known as Class A office towers, including the Energy Center before it was acquired. All had some type of bond financing that could leave them particularly vulnerable to foreclosure.
The Energy Center is notable for being one of the best-performing office towers in the city, with an occupancy rate of about 90% and tenants that include LCMC Health, the law firm Chaffe McCall and the offices of Morgan Wealth Management Stanley.
“It has great tenants and has never been a distressed property,” said Mike Siegel, CEO of Corporate Realty, the real estate management firm owned by Gayle Benson and which was brought in by the lenders in March to manage the building. “It was only concerned in the capital markets.”
Triangle Capital retained Corporate Realty to continue running the building, Siegel said.
In addition to being almost fully occupied, the building is valued well above the outstanding debt, according to Trepp, who tracks commercial real estate transactions. Trepp said this year’s latest appraisal valued the building at $92.6 million, compared to the outstanding debt at the time of about $64 million.
That’s in contrast to the DXC Technology Center, another office tower on Poydras Street that was put on hold earlier this year. It sold for $18.5 million, well below its $30.2 million debt.
“The Energy Center probably has the most capital of any office tower in the city,” said Christopher Dozier of Union Advisory Group, a commercial property consultant. “Some buildings have zero or less than zero equity because of the debt load.”
However, Hertz was unable to negotiate a new deal after lenders lost confidence, Dozier said.
That includes a group of bondholders in Israel who in October voted to demand immediate repayment of about $168 million secured on the 15 Hertz buildings, according to filings with the Tel Aviv Stock Exchange, where the bonds are listed.
Bondholders also expect to receive proceeds from the sale of land associated with the Hertz-owned Capital One Tower in Lake Charles, which was demolished in September after it was determined that it could not be rehabilitated from damage sustained during Hurricane Laura . Another Hertz-owned building in Louisiana facing financial stress is Regions Tower in Shreveport, which was filed by creditors in September.
After Shell?
The biggest question now for Hertz in New Orleans is the fate of the Hancock Whitney Center, formerly known as One Shell Square, the state’s largest skyscraper.
The building will lose one of its largest tenants when Shell — which once occupied more than 1 million square feet — vacates its current 330,000 square feet to move to a new, taxpayer-subsidized building , 142,000 square meters in the River District. the end of 2026.
Shell’s departure will be preceded by the maturity in July of $108 million in bonds secured on the building. The building’s occupancy is currently around 80%, but would drop to around 55% with Shell’s departure, according to debt rating agency Fitch, which put the debt on “negative outlook” on Tuesday.