Foreclosure complaint against owners of regions tower

Downtown Indy Monument Circle file

INDIANAPOLIS — The mortgage holder on a significant downtown Indianapolis office building has filed for foreclosure against the owner of the property.

Wilmington Trust, National Association, has filed against NG 211 N. Pennsylvania St LLC and Regions Tower MF LLC in Marion Superior Court claiming nearly $75 million in overdue mortgage and other payments.

“Borrower is in default under the terms of Loan Documents, including the Mortgage,” reads the complaint.

At 36 stories, Regions Tower is one of the tallest office buildings in downtown Indianapolis.

One analyst said the foreclosure notice could be an indication of the softness of the downtown office market and a warning of things to come.

”You’re gonna have lots of properties, office properties, with debt that’s maturing have a problem that could lead to foreclosure,” said Tim Michel, Managing Principal at Cushman-Wakefield. ”If your debt is maturing in the next 12 months, you’ve got a challenge, not only for the borrower but the lender.”

Michel said the foreclosure crisis facing the owners of Regions Tower could be due to maturing loans that need to be refinanced at significantly higher interest rates, or, the loan market’s souring commitment to urban office properties, or, an indicator of downtown Indianapolis’ softening office market, or, all of the above.

”Our overall downtown vacancy is now 21.79%. and that was 14.4% at the end of 2019 leading into the pandemic, so, there’s an additional 800,000 square feet compared to 2019 in downtown alone,” said Michel, noting the outlook isn’t much better for office space away from downtown. “Most renewals that have happened really in the last two-to-three years have been for 25-30% less space on average.”

Downtown Indy foot traffic is struggling to bounce back to 50% of what it was before the 2020 pandemic as tens of thousands of office workers have not returned to the Mile Square, and many of those who do, come to the office only Tuesday through Thursday.

”Demand overall has to improve for the overall office market to improve which means basically attracting more companies, more businesses to downtown or into the Indianapolis market overall,” said Michel. ”Having vacancy and having lenders foreclose on projects is not a healthy thing. Ultimately, on the other side of this, a new owner could come in and they buy it for a cheaper price and then they can do some things, you know, be more aggressive in pricing and those types of things.”

If other highrise owners find themselves in a mortgage crunch like Regions Tower, for sale signs could go up on several downtown buildings, which might be had at bargain rates, but reduced property values mean less property tax revenue to support neighborhoods and other services throughout Marion County.

”If you’ve got debt that’s due today or in the next 12 months, you’ve got a problem,” said Michel. “Because with the unknown on the leasing demand and the doubling or maybe even tripling of interest rates there’s been a loss of value of most office properties at 25-40% range.”

Developers have succeeded in turning a pair of iconic downtown office buildings, the former AT&T building and the Gold Building, both along Ohio Street, into residential properties as the city and builders seek to convince more people to move downtown.

Michel pointed out that not all office buildings lend themselves to residential redevelopment.