This week's column examines Shell's departure from a downtown New Orleans office tower, a downgrade for debt on a vacant Houston building and retail landlord CBL Properties walking away from a mall in Louisville, Kentucky. Read the entire piece by clicking "read more" below.
Energy giant to slash space in New Orleans center: Oil and gas giant Shell plans to slash its footprint at the Hancock Whitney Center in New Orleans by more than half, dealing another blow to the struggling downtown office tower that has seen its value plummet 50% since 2015.
The property, owned by Hertz Investment Group, is subject to a $102.4 million commercial mortgage-backed securities loan that failed to pay off last summer. Hertz did not respond to CoStar News' request for comment.
The 50% valuation drop for the Hancock Whitney Center, referenced in CMBS bondholder notes, signals how quickly office assets can deteriorate when a prominent tenant departs. A recent appraisal valued the property at $89.9 million, down from $180.6 million at loan origination in 2015.
Shell plans to shrink from 308,439 square feet to 140,520 square feet starting in January 2027 under a proposed nine-month lease agreement at $22 per square foot, according to CMBS documents. Shell currently occupies 25% of the building's gross leasable area at $18 per square foot through the end of 2026.
The downsizing precedes Shell's planned relocation of its Gulf Coast regional headquarters from the Hancock Whitney Center to a new 142,000-square-foot office building in the city's River District. Shell signed a 12-year lease for the new development near the Ernest N. Morial Convention Center.
Vacant Houston tower downgraded: Morningstar DBRS has downgraded the CMBS debt tied to a 632,511-square-foot office building in Houston that is sitting vacant.
The property is subject to a loan with a current balance of $48.3 million. The loan had been placed on a watchlist after it failed to pay off on its anticipated repayment date in October 2024, though it is not scheduled for final payoff until October 2027.
Morningstar DBRS cited concern about the elevated risk of a default stemming from a softening market. As such, Morningstar DBRS analyzed the loan with a liquidation scenario based on 70% of the issuance appraised value of $84.5 million.
The property at 5400 Westheimer Court was 100% occupied by Spectra Energy, an Enbridge subsidiary that vacated the property prior to its lease expiration in April. Spectra has maintained rent payments, but those will end upon expiration.
The property exemplifies concerns across Houston's Galleria-Uptown office market. As Houston's second-largest office district, Galleria-Uptown currently shows a 34.7% vacancy — the second-highest rate among Houston's 46 markets and 15 percentage points above the market average, according to CoStar data. Galleria-Uptown's vacancy rate has more than doubled since late 2019, marking the steepest increase citywide.
The area's vacancy rate is likely to pose challenges in backfilling the large square footage at 5400 Westheimer, according to Morningstar DBRS.
PTAD Realty, controlled by the DiMare family through an affiliate, owns the property. DiMare is one of the largest food distributors in Texas. PTAD did not respond to a request for comment.
CBL parts with Kentucky mall: CBL Properties is giving up ownership of Jefferson Mall in Louisville, Kentucky, telling lenders it does not plan to repay the $48.8 million loan at its June due date, according to CMBS commentary.
The retail landlord notified the special servicer, Argentic Services, in December that it no longer wants to retain the 417,955-square-foot mall. The loan moved to special servicing last month. CBL did not respond to a request for comment.
Special servicers plan to seek a receivership appointment and file foreclosure proceedings, according to CMBS commentary.
CBL's exit marks the second special servicing stint for Jefferson Mall debt. The loan was previously transferred to special servicing at its 2022 maturity date. Appraisers valued the mall at $34.7 million during that workout.
Jefferson Mall maintained 90% occupancy through mid-2025 despite declining financial metrics, according to loan commentary. As of June, the property was generating only enough excess income to pay 93 cents on every dollar owed.
Apparel chain H&M renewed its 22,798-square-foot lease through January 2028, after initially facing an expiration in January. The retailer represents 7% of the net rentable area.
Twenty-eight tenant leases representing 17% of net rentable area are set to expire this summer, according to CMBS notes.