Three downtown office towers facing lender scrutiny

riverfront plaza Cropped

Riverfront Plaza’s twin office towers recently entered special servicing. (Mike Platania photo)

The loans on three downtown office towers are in distress. 

Riverfront Plaza’s twin towers at 901-951 E. Byrd St. and the Bank of America Center at 1111 E. Main St. are each facing scrutiny from the noteholders that own the debt tied to the properties. The loans, which have a combined balance of $96 million, recently entered special servicing, according to reports from commercial real estate data firm Trepp. 

Loans on large commercial properties are often packaged and sold into commercial mortgage-backed securities, which are bonds made up of various loans on various buildings. When a given loan in the bond is at risk of going into default, the noteholder (the entity that’s owed the money) will place that loan into special servicing. 

Special servicers are independent firms that act as mediators between noteholders and borrowers. If a solution isn’t reached during special servicing, the process can end with the building going into a forced sale or foreclosure. 

Andy Little, a principal at local real estate investment banking firm John B. Levy & Co., said simply put, special servicing occurs when a loan becomes distressed. 

little headshot

Andy Little

“When there’s a potential issue with the deal, it may not have defaulted, but maybe they lost a major tenant or they’d become 30 days late (on the mortgage payment),” Little said. “So the special servicer comes in to manage it, and try and figure out a solution.”

The terms on commercial loans are also often much shorter than the typical 30-year mortgages individuals borrow for their homes. Little said that if a commercial loan reaches maturity and the building’s owner hasn’t refinanced, that, too, could land the building in special servicing. 

“A lot of times if you can’t find another lender, you’re going to end up in special servicing,” he said. “Then what the special servicer can do is extend the loan.”

Riverfront Plaza entered special servicing in January, just weeks before owner Hertz Investment Group missed its first mortgage payment in February, according to a Trepp report. The loan, which has a balance of $50 million, initially went into special servicing due to Hertz’s “failure to comply with excess cash requirements,” as it relates to certain provisions of the loan. 

Built in the late 1980s, Riverfront Plaza counts nearly one million square feet of office space across its two 20-story towers. California-based Hertz has owned the complex since 2015, when the firm bought it for $147.5 million.

Hertz President Zev Hertz said in an email last week that he expects the property will “soon return to normalized master servicing,” and that Riverfront Plaza isn’t at risk of being foreclosed on. 

“Leasing at Riverfront is relatively healthy with continued demand due to the property’s position as the head of its asset class in the urban downtown core,” Hertz said in an email. 

Hertz said the towers are 83 percent leased and that they have “several larger anchor-type prospects to fill current vacancies at the property and are excited about the future.”

Riverfront Plaza’s largest tenant is law firm Hunton Andrews Kurth, and 51 percent of active leases at Riverfront Plaza, including Hunton’s, are due to expire in the next two years, according to the Trepp report.

Argentic Services Company, a firm out of Texas, has been appointed Riverfront Plaza’s special servicer.

Bank of America Center

bank of america center

Bank of America Center stands at the corner of East Main and South 12th streets.

Three blocks northeast of Riverfront Plaza is Bank of America Center, a 23-story tower primarily occupied by its namesake bank and various state agencies.

The $46 million loan on the property went into special servicing last September, before building owner District Bay Realty Advisors missed a mortgage payment in December. The D.C.-based landlord has since become current on the loan once again.

District Bay bought the 500,000-square-foot tower for $42 million in 2016. The company did not respond to requests for comment. 

The challenges facing Bank of America Center seem to be more immediate than those facing Riverfront Plaza. The building was placed into special servicing due to “imminent default,” according to Trepp. 

The loan on the property was rated as “underperform” in the Trepp report, “based on its status with the special servicer, an expected decline in collateral occupancy, and elevated lease rollover risk in the near term.”

The building lost a few tenants last year, most notably law firm Sands Anderson, which relocated to Truist Place. Bank of America also announced plans to close its branch on the ground floor of the 51-year-old building. 

The building was 78 percent occupied as of September 2023, the most recent figure in the Trepp report. Of those active leases, 34 percent are set to expire within a year.

Florida-based Rialto Capital has been appointed Bank of America Center’s special servicer. 

Despite being in special servicing, both Riverfront Plaza and Bank of America Center still operate in the black, according to Trepp.

Last year Riverfront Plaza brought in $25.1 million in income and $10 million in expenses. The $15.1 million profit was in line with the amount the towers brought in in 2022 and 2021. 

Bank of America Center last year posted a profit of $4.1 million with $7.5 million in revenue and $3.4 million in expenses. The office tower’s annual revenue and profits have been trending down: In 2019 Bank of America Center brought in $11.1 million in revenue and $7 million in profit. 

Richmond region faring better than others

downtown aerial Cropped scaled

The city and region’s office market overall has been outperforming the national average. (Photo credit: SkyShots Photography)

Aside from the loan issues on Riverfront Plaza and Bank of America Center, Richmond’s office market is doing well relative to the national average. 

According to data from Cushman & Wakefield, the nationwide office vacancy rate for the fourth quarter of 2023 was 19.7 percent. The vacancy rate in Richmond in that same time period was just 8.4 percent. 

Kate Hosko, a vice president at Thalhimer who specializes in brokering office deals, said Richmond has a few things working in its favor. Being the state capital, there are plenty of government agencies that gobble up space, and throughout the region, the average office tenant skews on the smaller side.

kate hosko

Kate Hosko

“Our average tenant is in the 2,000- to 6,000-square-foot range. Those businesses, by and large, work in the office. These are our small businesses that did not adopt a work-from-home policy,” Hosko said. 

There’s also an element of luck. When the pandemic hit, Richmond didn’t have a glut of new, spec office space coming online like other larger markets. 

“We approached the pandemic in a very fortunate position: being under-built. When you look at our available inventory of class-A and trophy class…that has an even lower vacancy rate,” Hosko said. “We’re just not in the world of hurt that our peers in D.C. and San Francisco are in right now.”

The office landlords that are doing well in Richmond, Hosko said, are the ones that are willing to spend some money to get their buildings up to modern standards. 

“The landlords that are succeeding – the winners, so to speak – are creating a reason to come back into the office,” Hosko said. “That looks like amenities, it looks like natural light, and honestly it looks like grit and hustle to work with employers who are trying to occupy space with very low budgets.”

One local landlord that’s been unafraid of investing into its office towers is Riverstone Properties, the Bill Goodwin-led firm that owns the three-building James Center office complex downtown at 901, 1021 and 1051 E. Cary St. Riverstone bought the buildings for $108 million in 2017 and promptly set out on a major renovation and modernization of each of the towers.

Since embarking on the renovation plan, James Center has landed office tenants like architecture firm Baskervill and South State Bank, as well as restaurant tenants like Chopt, The Pit and The Peel and Chick-fil-A.

Bruce Boykin, Riverstone’s senior asset manager for James Center, said the complex has historically held plenty of law and financial tenants, and has seen a recent uptick in tech and lobbying-government affairs users. Boykin said the company has also made deals with suburban office users looking for a downtown presence in order to help with employee retention and recruitment. The complex’s overall occupancy is now 75 percent, a 4 percent increase over last year.

bruce boykin riverstone james center

Bruce Boykin

So far, Riverstone has spent over eight figures modernizing the James Center, and Boykin said it was able to get a lot of the construction done during the pandemic when major tenants weren’t in the office.

“It’s something that needed to be done,” Boykin said. “It was lucky that the renovations were well-timed and the office market now really favors high-quality, well-located buildings.”

While the Richmond region’s current office vacancy rate is lower relative to the rest of the country, it’s still up from the 5.7 percent in the fourth quarter of 2019, prior to the pandemic. 

It’s unclear what Riverfront Plaza and Bank of America Center’s ultimate fate will be, or whether more downtown offices will join them in special servicing. In other cities like Denver, nearly a dozen office towers have gone into special servicing and foreclosure, per a report from BizSense sister publication BusinessDen

Little, from John B. Levy & Co., said office towers in many major cities are going through special servicing. 

“They’re just not able to get financed or sold, and there’s just no capital or liquidity for office towers right now,” Little said. “It’s definitely a trend nationally, and I’m not surprised to see it happen here locally.”

riverfront plaza Cropped

Riverfront Plaza’s twin office towers recently entered special servicing. (Mike Platania photo)

The loans on three downtown office towers are in distress. 

Riverfront Plaza’s twin towers at 901-951 E. Byrd St. and the Bank of America Center at 1111 E. Main St. are each facing scrutiny from the noteholders that own the debt tied to the properties. The loans, which have a combined balance of $96 million, recently entered special servicing, according to reports from commercial real estate data firm Trepp. 

Loans on large commercial properties are often packaged and sold into commercial mortgage-backed securities, which are bonds made up of various loans on various buildings. When a given loan in the bond is at risk of going into default, the noteholder (the entity that’s owed the money) will place that loan into special servicing. 

Special servicers are independent firms that act as mediators between noteholders and borrowers. If a solution isn’t reached during special servicing, the process can end with the building going into a forced sale or foreclosure. 

Andy Little, a principal at local real estate investment banking firm John B. Levy & Co., said simply put, special servicing occurs when a loan becomes distressed. 

little headshot

Andy Little

“When there’s a potential issue with the deal, it may not have defaulted, but maybe they lost a major tenant or they’d become 30 days late (on the mortgage payment),” Little said. “So the special servicer comes in to manage it, and try and figure out a solution.”

The terms on commercial loans are also often much shorter than the typical 30-year mortgages individuals borrow for their homes. Little said that if a commercial loan reaches maturity and the building’s owner hasn’t refinanced, that, too, could land the building in special servicing. 

“A lot of times if you can’t find another lender, you’re going to end up in special servicing,” he said. “Then what the special servicer can do is extend the loan.”

Riverfront Plaza entered special servicing in January, just weeks before owner Hertz Investment Group missed its first mortgage payment in February, according to a Trepp report. The loan, which has a balance of $50 million, initially went into special servicing due to Hertz’s “failure to comply with excess cash requirements,” as it relates to certain provisions of the loan. 

Built in the late 1980s, Riverfront Plaza counts nearly one million square feet of office space across its two 20-story towers. California-based Hertz has owned the complex since 2015, when the firm bought it for $147.5 million.

Hertz President Zev Hertz said in an email last week that he expects the property will “soon return to normalized master servicing,” and that Riverfront Plaza isn’t at risk of being foreclosed on. 

“Leasing at Riverfront is relatively healthy with continued demand due to the property’s position as the head of its asset class in the urban downtown core,” Hertz said in an email. 

Hertz said the towers are 83 percent leased and that they have “several larger anchor-type prospects to fill current vacancies at the property and are excited about the future.”

Riverfront Plaza’s largest tenant is law firm Hunton Andrews Kurth, and 51 percent of active leases at Riverfront Plaza, including Hunton’s, are due to expire in the next two years, according to the Trepp report.

Argentic Services Company, a firm out of Texas, has been appointed Riverfront Plaza’s special servicer.

Bank of America Center

bank of america center

Bank of America Center stands at the corner of East Main and South 12th streets.

Three blocks northeast of Riverfront Plaza is Bank of America Center, a 23-story tower primarily occupied by its namesake bank and various state agencies.

The $46 million loan on the property went into special servicing last September, before building owner District Bay Realty Advisors missed a mortgage payment in December. The D.C.-based landlord has since become current on the loan once again.

District Bay bought the 500,000-square-foot tower for $42 million in 2016. The company did not respond to requests for comment. 

The challenges facing Bank of America Center seem to be more immediate than those facing Riverfront Plaza. The building was placed into special servicing due to “imminent default,” according to Trepp. 

The loan on the property was rated as “underperform” in the Trepp report, “based on its status with the special servicer, an expected decline in collateral occupancy, and elevated lease rollover risk in the near term.”

The building lost a few tenants last year, most notably law firm Sands Anderson, which relocated to Truist Place. Bank of America also announced plans to close its branch on the ground floor of the 51-year-old building. 

The building was 78 percent occupied as of September 2023, the most recent figure in the Trepp report. Of those active leases, 34 percent are set to expire within a year.

Florida-based Rialto Capital has been appointed Bank of America Center’s special servicer. 

Despite being in special servicing, both Riverfront Plaza and Bank of America Center still operate in the black, according to Trepp.

Last year Riverfront Plaza brought in $25.1 million in income and $10 million in expenses. The $15.1 million profit was in line with the amount the towers brought in in 2022 and 2021. 

Bank of America Center last year posted a profit of $4.1 million with $7.5 million in revenue and $3.4 million in expenses. The office tower’s annual revenue and profits have been trending down: In 2019 Bank of America Center brought in $11.1 million in revenue and $7 million in profit. 

Richmond region faring better than others

downtown aerial Cropped scaled

The city and region’s office market overall has been outperforming the national average. (Photo credit: SkyShots Photography)

Aside from the loan issues on Riverfront Plaza and Bank of America Center, Richmond’s office market is doing well relative to the national average. 

According to data from Cushman & Wakefield, the nationwide office vacancy rate for the fourth quarter of 2023 was 19.7 percent. The vacancy rate in Richmond in that same time period was just 8.4 percent. 

Kate Hosko, a vice president at Thalhimer who specializes in brokering office deals, said Richmond has a few things working in its favor. Being the state capital, there are plenty of government agencies that gobble up space, and throughout the region, the average office tenant skews on the smaller side.

kate hosko

Kate Hosko

“Our average tenant is in the 2,000- to 6,000-square-foot range. Those businesses, by and large, work in the office. These are our small businesses that did not adopt a work-from-home policy,” Hosko said. 

There’s also an element of luck. When the pandemic hit, Richmond didn’t have a glut of new, spec office space coming online like other larger markets. 

“We approached the pandemic in a very fortunate position: being under-built. When you look at our available inventory of class-A and trophy class…that has an even lower vacancy rate,” Hosko said. “We’re just not in the world of hurt that our peers in D.C. and San Francisco are in right now.”

The office landlords that are doing well in Richmond, Hosko said, are the ones that are willing to spend some money to get their buildings up to modern standards. 

“The landlords that are succeeding – the winners, so to speak – are creating a reason to come back into the office,” Hosko said. “That looks like amenities, it looks like natural light, and honestly it looks like grit and hustle to work with employers who are trying to occupy space with very low budgets.”

One local landlord that’s been unafraid of investing into its office towers is Riverstone Properties, the Bill Goodwin-led firm that owns the three-building James Center office complex downtown at 901, 1021 and 1051 E. Cary St. Riverstone bought the buildings for $108 million in 2017 and promptly set out on a major renovation and modernization of each of the towers.

Since embarking on the renovation plan, James Center has landed office tenants like architecture firm Baskervill and South State Bank, as well as restaurant tenants like Chopt, The Pit and The Peel and Chick-fil-A.

Bruce Boykin, Riverstone’s senior asset manager for James Center, said the complex has historically held plenty of law and financial tenants, and has seen a recent uptick in tech and lobbying-government affairs users. Boykin said the company has also made deals with suburban office users looking for a downtown presence in order to help with employee retention and recruitment. The complex’s overall occupancy is now 75 percent, a 4 percent increase over last year.

bruce boykin riverstone james center

Bruce Boykin

So far, Riverstone has spent over eight figures modernizing the James Center, and Boykin said it was able to get a lot of the construction done during the pandemic when major tenants weren’t in the office.

“It’s something that needed to be done,” Boykin said. “It was lucky that the renovations were well-timed and the office market now really favors high-quality, well-located buildings.”

While the Richmond region’s current office vacancy rate is lower relative to the rest of the country, it’s still up from the 5.7 percent in the fourth quarter of 2019, prior to the pandemic. 

It’s unclear what Riverfront Plaza and Bank of America Center’s ultimate fate will be, or whether more downtown offices will join them in special servicing. In other cities like Denver, nearly a dozen office towers have gone into special servicing and foreclosure, per a report from BizSense sister publication BusinessDen

Little, from John B. Levy & Co., said office towers in many major cities are going through special servicing. 

“They’re just not able to get financed or sold, and there’s just no capital or liquidity for office towers right now,” Little said. “It’s definitely a trend nationally, and I’m not surprised to see it happen here locally.”

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Bruce Milam
Bruce Milam
1 month ago

The big test will come as the new CoStar tower opens its one million square feet and the company withdraws whole floors of its workers from Riverfront and other buildings. Will those landlords be prepared to back-fill that space?there’s also increasingly higher pressure on restaurants trying to serve lunch to a dwindling office worker market. Several have closed recently. Their customer base withdrew and the city taxed them into oblivion.

Connor Mathew
Connor Mathew
1 month ago

I grew up going to the Bank of America building. My father worked there back when it was F&M Bank. Then Sovran. Then C&S/Sovran. Then NationsBank. Christmas in the 1980s was special there. They would have Santa rappel down the side of the building while all the kids watched. When I heard they were closing their branch there, I was shocked. I know it may not look it, but it really was a jewel of downtown when it was built.

Peter James
Peter James
1 month ago
Reply to  Connor Mathew

Agreed, Connor. It truly was a jewel of downtown, and it was the tallest building in Richmond when it opened in 1975, surpassing City Hall (which, when it opened in 1971, had surpassed RVA’s long-time height champion – the old CNB Building at 3rd & Broad). For a number of years, the F&M Center (as the Bank of America building was known then) was the dominant feature on the RVA skyline, much more-so than it is today, as numerous high-rises have since sprouted up over the past 40-45 years in and around the old legacy Financial District. Unquestionably, the Bank… Read more »

Last edited 1 month ago by Peter James
Ed Christina
Ed Christina
1 month ago

I’d be interested in some reporting on what local /regional banks in RVA will suffer the most when the office space sector collapses.
Also, an 8% vacancy rate for offices seems really low.

David Humphrey
David Humphrey
1 month ago
Reply to  Ed Christina

That’s an 8% vacancy rate without a lease. I’m sure the actual vacancy is much higher.

Ed Christina
Ed Christina
1 month ago
Reply to  David Humphrey

Aha! that makes sense.

Ramone Antonio
Ramone Antonio
1 month ago

My peers and I always felt the Richmond Skyline could be more attractive bigger,taller etc. I’m hoping these buildings stay. They are a staple to the city.

Michael Boyer
Michael Boyer
1 month ago

Bank of Americas ground flr.courtyard is impressive.

Brian King
Brian King
1 month ago

Urban Doom Loop on the horizon

David Chrisman
David Chrisman
1 month ago

This is simply long tem fallout from bank mergers. Following deregulation, and then, consolidation, smaller communities were impacted first and left with only retail branches. Medium size cities such as Richmond were “awarded” regional offices and the corporate headquarters were whisked away to the likes of Charlotte, Atlanta and San Francisco. Now a new wave of belt tightening driven by the US’s uniquely powerful class of activist investors, foreign ownership and executive performance bonuses, is impacting both regional centers as well as headquarters communities. In fact the NY Times recently published a hand wringing piece on just this topic; basically… Read more »

Brian King
Brian King
24 days ago

It’s funny how some business in Richmond are blindsided and fail when national trends show problems/issues in their business. Circuit City comes to mind, then there was Heilig Meyers and of course Best Products. Eventually we’ll see office space un-occupancy rates rise and some fore closures.