Is the James Center headed for a foreclosure sale?

One of downtown Richmond’s most iconic office projects — known the region over for its holiday display of thousands of lights on white reindeers — is teetering towards official default and appears to be heading for the auction block.
 
The $150 million in commercial mortgage backed securities (CMBS) debt due on the James Center has fallen into delinquency, according to New York-based Trepp LLC, a real estate analytics company. The maturity date on the loans is in March 10, said Sean Barrie, a research analyst for Trepp.  “Once the maturity date passes, that’s the official default.”

Meanwhile, a legal classified ad in the Richmond Times-Dispatch, says that One, Two and Three James Center at 901, 1021 and 1051 E. Cary St. will be offered for sale at public auction to the highest bidder at noon on March 8 at the front entrance of the John Marshall Courts Building. 

Officials with New York-based JEMB Realty, the company that owns the buildings under its affiliate of James Center Property LLC, could not be reached for comment to confirm that a foreclosure auction will take place.  The loan has been transferred to a special servicer, LNR Partners I, which is based in Miami.

For 31 years, the three-building James Center complex has been one of the area’s most popular holiday sites with its annual lighting ceremony featuring a holiday tree and scores of white reindeer. The complex offers over 1 million square feet of space encompassing three office towers that are interconnected by walkways, with a fitness center and stores at the site. Two of the office towers are directly linked to the Omni Richmond Hotel by a 50,000-square-foot glass atrium,

The path to a possible foreclosure began last summer when James Center’s vacancy rate shot up after a move by its major tenant, the McGuireWoods law firm. It moved to a new office tower across the street, Gateway Plaza, leaving 257,000 square feet vacant.

Since then some new tenants, including two state agencies, the Virginia Economic Development Partnership and the Virginia Tourism Corp., have signed leases for 55,000 square feet.  The Dixon Hughes Goodman accounting firm also leased 20,000 square feet.

According to JLL, the building’s leasing agent, the occupancy rate for The James Center stands at 72 percent. That’s up from the 65.8 percent rate that Trepp reported in December, yet below the 88 percent that the complex enjoyed in December 2014, before McGuireWoods departed.

So, what’s the likely future for the James Center?  The appraised value of the James Center, which was $136 million in September, is below the amount due on the loans. However, not all is not gloom and doom, according to Barrie. “It’s not that far off the original appraisal [of $192.5 million in 2005]. It’s one of the biggest buildings downtown. It’s a prime space. Even with that huge chunk of occupancy missing, the financials aren’t so bad as other loans that we’ve seen in similar situations, so there’s no reason why it can’t fetch a pretty good price. Depending on who takes it on, and if they can find a good tenant,” things could work out, he said. The bottom line, he says, “If you don’t have enough tenants, you can’t produce enough revenue.”

There’s no question, he adds, that some tenants in today’s market are looking for modern space with open floor plans in new buildings. “But some people will see more value in an investment like the James Center, where they can move in and not take up the whole space.” 

Overall, the U. S. office market sector has been doing well, Barrie said, with the default rate in January at 5.2 percent.

The best-case scenario, said Barrie, would be for the owners to find someone “with a big chuck of cash who wants to stay in the building long-term.”