Philadelphia's largest office property is prepared to hit the market as a potential conversion play, a move that could boost the future for the complex that has seen its valuation and occupancy plummet.
CBRE, the court-appointed receiver for the two-tower Centre Square property, will soon list the challenged complex for sale in the aftermath of its 2023 foreclosure. Rather than test its appeal as an office, however, the brokerage will pitch the more than 2.2 million-square-foot complex at 1500 Market St. as an opportunity to overhaul it into a future residential, retail or hospitality use.
The property is expected to land a price tag of about $100 million, a sharp decline from the $510 million appraisal Centre Square was valued at in 2020, according to public records.
The upcoming listing is part of a broader trend in which office landlords and brokers are pitching sometimes empty buildings for uses other than a place for desks, conference rooms and coffee stations. The number of office conversions across the country has hit a record high, according to a recent CBRE report, and the pipeline is expected to widen as cities dole out more incentives and landlords — especially those of older buildings — offload their troubled properties at deep discounts.
Centre Square's occupancy has fallen to about 35% in recent years, according to a Morningstar report, and CBRE was appointed to oversee the property in May 2023 after owner Nightingale Properties stopped making payments on more than $375 million in loans.
The New York-based investment firm and InterVest Capital Partners — formerly Wafra Capital Partners — acquired the Market Street properties as part of a $328 million portfolio deal that closed in mid-2017.
String of move-outs
The duo refinanced it with a $390 million loan through JPMorgan Chase two years later, and the property was foreclosed upon after a string of substantial move-outs compounded the landlords' financial challenges.
Neither Nightingale nor Wafra immediately responded to CoStar News' requests for comment.
Those who list distressed or high-vacancy office properties are sometimes trying to sell them as potential conversions to apartments, self-storage facilities and even entertainment venues.
The shift represents a new level of eagerness to build interest in these properties that may be older, face pressure from lenders, or have nonexistent leasing activity.
For office properties listed for sale, potential conversions can serve as somewhat of a fallback strategy among investors who aren't yet sure they want to preserve a building's original use.
More than 81 million square feet of office space is moving through the conversion pipeline, according to CBRE, and U.S. office conversions and demolitions are on track to exceed the market’s new construction for the first time in years.