A 24-story office tower in downtown Denver that recently lost a huge, high-powered tenant is in foreclosure.
The 410 17th St. tower is owned by RREF III-P 410 17th St LLC, which has previously been described as a joint venture between Steelwave and Rialto Capital Management.
It paid $127.25 million for the 435,000-square-foot building in June 2019, and took out a $113.05 million loan at the same time, records show. The maturity date on the loan was Jan. 5, 2023, with a possible extension to 2025.
The building’s lender, an affiliate of Ares Commercial Real Estate, initiated the foreclosure process last month, saying the owner had defaulted on the loan due to “the failure to make timely payments of principal and interest when due.” Ares said it’s still owed $96.18 million on the original loan.
Rialto didn’t respond to a request for comment.
The tower, which is across the street from Republic Plaza and the Brown Palace hotel, was 76 percent leased when it was sold in 2019, according to JLL, which represented the seller in that deal.
One tenant at that time was Brownstein Hyatt Farber Schreck, which had its 130,000-square-foot headquarters in the building. The law and lobbying firm had been there for about 40 years. But Brownstein jumped to a new skyscraper earlier this year, taking 100,000 square feet at Block 162.
As of last week, 410 17th St. was 37 percent leased, leaving 284,000 square feet vacant, according to CoStar. But CoStar said the amount of “available” office is 327,000 square feet, indicating more tenants have likely given notice that they’ll be moving out. That would leave the building about 25 percent leased.
This is just the second major downtown office building to enter foreclosure since the pandemic began, following the two-tower Denver Energy Center at 1625 and 1675 Broadway, which reverted to its lender last year when no one else bid at an auction. The lender on 1801 Broadway recently said in a lawsuit it intends to foreclose on the building, but had yet to file paperwork as of Friday.
Other office tower loans are distressed but not in the foreclosure process. The loan secured by Wells Fargo Center is in special servicing, which can serve as a precursor to foreclosure. Republic Plaza’s loan was also in special servicing for months, but the owner and lender reached a deal earlier this summer.
Unlike the standard homeowner’s mortgage, commercial real estate loans are not designed to be paid off by the end of the lease term. When the maturity date is reached, owners typically refinance into a new loan or sell the building. But refinancing at a desirable rate has become challenging due to a spike in interest rates initiated by the Federal Reserve. And office building valuations have dropped given the rise of remote work, subleasing and tenant downsizing.
The tower along 17th Street, dubbed The 410, is scheduled to be sold at auction in late November, although foreclosure auction dates are regularly pushed back. Steven Abelman of Brownstein Hyatt Farber Schreck is representing the landlord in the foreclosure proceedings.
The 410 has floorplates of 18,500 square feet and an attached eight-level garage with more than 300 spaces. CoStar shows the rent asking price ranging from $23 to $26 per square foot annually on a triple-net lease.
Oilfield services company Weatherford is the building’s largest tenant, with about 21,000 square feet, according to CoStar. Only one other tenant, JAMS, is listed at larger than 10,000 square feet.