The law firm Preston Gates & Ellis vacated 167,000 sf in the building in January and relocated to 240,000 sf in the new IDX Tower developed by Hines Interests LP. Making matters worse, the ratings agency is reporting that since that time several other tenants with lease expirations in 2003 either have announced they will vacate or have signed new leases at current market rents, which are significantly below their previous rents.
As a result, the Equity Office Properties skyscraper is 24% vacant in a market that's averaging 16% vacancy. Moreover, Fitch says vacancy will rise to 27% at year end if no new leases are signed and an additional 13% of the building's leases expire in 2004, long before the market is expected to recover.
"The lower market rents, increased vacancy and limited new leasing activity, may affect the borrower's ability to refinance the loan at maturity in December 2004," says the ratings agency.
Fitch says it took into consideration new leases signed to date for the remainder of 2003 and the vacant space to determine a Fitch 2003 projected net cash flow of $19.5 million. The resulting "Fitch stressed debt service coverage ratio," which is based on a 9% refinance constant, is 1.11x, down from 1.45x at issuance. On a positive note, Fitch says that even with the drop in rental income at the property projected throughout 2003, the loan's LIBOR +1.15% interest rate will keep actual debt service coverage ratio high at 3.35x.
"Therefore, Fitch is not concerned about payment default within the loan term," states the agency's ratings change announcement. Then again, according to its report, Fitch still believes Wright Runstad & Co. is still managing and "actively" leasing the building, and that has not been the case since 2001, when EOP took management and leasing in-house.
Only one of the six classes of Columbia Center Trust's commercial mortgage pass-through certificates was dropped below investment grade. Specifically, the changes were as follows: $114.6 million class A and interest-only class X1 to 'AA' from 'AAA'; $22.9 million class B to 'A' from 'AA'; $20.4 million class C to 'BBB+' from 'A+'; $17.0 million class D to 'BBB-' from 'A-' and $20.2 million class E to 'BB' from 'BBB'.
The certificates are secured by a first priority deed of trust and security agreement on two adjacent buildings, Bank of America Tower and Columbia House, which total 1.54 million sf. EOP's Web site shows only one small vacancy in Columbia House. In BofA Tower, 368,628 sf is being marketed for lease, and all but 12,000 sf is listed as immediately available. Neither leasing rep John Hansen nor the building's General Manager Jane Stratton were available for comment on Friday afternoon.
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