This week's column examines an end to the lull in CMBS deals, a New York office and retail property nearing foreclosure, and eyes on a large federal lease in Washington, D.C. Read the entire piece by clicking "read more" below.
Invesco breaks tariff-induced lull: Invesco Commercial Real Estate Finance Trust has ended the temporary pause on commercial mortgage-backed securities offerings following the White House's implementation of worldwide tariffs in early April.
The Dallas-based nontraded commercial real estate finance trust issued its inaugural $1.22 billion commercial real estate collateralized loan obligation, INCREF 2025-FL1. The deal was the largest diversified CRE CLO offering since February 2022, according to CoStar data.
Invesco's offering was the first new issuance since early March. However, four other private lenders are going to market with deals of their own totaling about $3.5 billion, CoStar data shows.
"This issuance, which priced efficiently amid volatile market conditions, is the largest diversified CRE CLO issued in the U.S. in the past three years evidencing the market's confidence in the sector," Charlie Rose, president and lead portfolio manager of the Invesco trust, said in a statement. "We have improved our overall cost of capital and accessed significant additional liquidity at a time when our liquidity position is already extraordinarily strong."
CRE CLO securitizations typically contain short-term loans used to finance commercial real estate acquisitions and projects. The Invesco deal is secured by a portfolio of 28 loans on 98 commercial properties, consisting of about 55% multifamily and 45% industrial loans. Fitch Ratings and Moody's Investors Service rated the offering.
The largest loan in the pool is for $136 million on 99th Avenue, a three-property, 1.28 million-square-foot industrial campus in Tolleson, Arizona, according to Fitch. The loan funded KKR's acquisition of the property for $165 million two years ago. That financing featured $20.3 million for future capital and tenant improvements.
KKR's business plan is to complete about $1.7 million in capital improvements and lease out 327,000 square feet of vacant space under a multitenant leasing strategy, according to Fitch. As of the December rent roll, the property was 95.8% leased.
New York property nears foreclosure: A loan servicer is pursuing receivership and foreclosure of an office and retail property in New York one year after a troubled $104.5 million loan was put into special servicing, according to CMBS commentary supplied to CoStar. The debt is secured by the 11-story 90 Fifth Ave. building in Manhattan.
Servicers have primarily used receiverships for mall and hotel properties that need more active, hands-on daily management, according to Stav Gaon, CMBS strategist at Academy Securities. But office receiverships are poised to become more prevalent.
"Servicers are now more inclined to appoint receivers and foreclose on [office] properties, rather than ink loan modifications," Gaon wrote in a column this month.
With receivership being sought for 90 Fifth, Fitch Ratings downgraded bonds holding pieces of the loan. The downgrades reflect higher loss expectations driven primarily by the borrower failing to remit property tax payments, according to Fitch.
Building owner RFR Realty did not respond to CoStar News' request for additional information.
Occupancy at 90 Fifth was 91% as of September. However, two of the largest tenants, Urban Compass and Hash Map Lab, have leases expiring this month, according to CMBS data. The two account for about 113,000 square feet, with Urban Compass making up 100,000 square feet. The building totals roughly 133,000 square feet, according to CoStar data.
Large DC lease decision looms: The ongoing move by the Department of Government Efficiency and the General Services Administration to downsize the federal government has the Washington, D.C., market keeping an eye on Pentagon Center, a two-building, 912,000-square-foot office complex in Arlington, Virginia.
The Department of Defense fully occupies one of the two buildings — the 558,187-square-foot Zachary Taylor Building at 2530 Crystal Drive. The DOD has not renewed the lease and is evaluating its plans, according to CMBS loan servicer commentary.
The Trump administration issued an executive order in February implementing the DOGE cost efficiency initiative. Under that order, agencies, including the DOD, were to review and justify all contracts, including leases.
The lease at the Zachary Taylor Building expires in September, and the Department of Defense was to have given notice of an intent to renew by March 2024, according to CMBS commentary. The department's failure to do so triggered a so-called cash trap provision in a CMBS loan on the property, allowing the lender to hold on to monthly rent payments. The Department of Defense is said to pay more than $22 million in annual rent at the building.
The Zachary Taylor Building and the James K. Polk Building at 2521 S. Clark St. are collateral on a $210 million CMBS loan scheduled to mature in March 2027.
Property owners Beacon Capital Partners and GIC Real Estate did not respond to requests for comment.