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‘Perfect storm’: Why a big downtown tower was taken over

Downtown market remains ‘weak,’ but other factors were at play.
Credit: St. Louis Business Journal

ST. LOUIS — The abrupt exit of several key tenants preceded the takeover of a major downtown building by its lender, according to interviews with brokers.

The tower at 100 N. Broadway fell into receivership last month after its owner, an entity tied to Hertz Investment Corp. of California, defaulted on a loan with $13 million still due. The note's initial maturity date had been in September 2016, but was extended to September 2018, when it became in default, according to financial filings to bond investors. Hertz attempting to sell the 510,202-square-foot, 20-story tower last summer, according to the note.

A Cushman Wakefield broker who markets the property, David Kelpe, said two law firms — Herzog Crebs and Senniger Powers LLP — pulled out last fall. 

Herzog said in April that it would dissolve, as 12 of its lawyers headed to Sandberg Phoenix & von Gontard. The law firm had been set to occupy 22,130 square feet through November 2024.

Senniger said in August it would merge with Stinson Leonard Street LLP, which has a large Clayton office. Senniger was also to occupy 22,130 square feet, but through May.

Kelpe said a final blow came when railroad giant Union Pacific at the end of October closed an office in the building, where it had about 19,000 square feet.

Those exits followed the departure CKE Restaurants Holdings Inc., parent company of restaurant chain Hardee's, which had more than 54,000 square feet until it moved to Nashville in 2017.

"It was a perfect storm," said Jim Mosby of Cushman. 

Kelpe said for Hertz, which also owns the Equitable Building at 10 South Broadway, "it wasn't an easy decision to throw away the keys and say we're walking away from" 100 N. Broadway.

"What happened to the building was unfortunate, but had nothing to do with ownership or management," said Kelpe, adding that the occupancy rate slipped from about 80 percent to 65 percent. The building could be "stabilized" at about 75 percent occupancy, he said.

"If this building was in Clayton, the same scenario would've happened," Kelpe said.

A building in that submarket, though, might have an easier time attracting new tenants. 

The downtown vacancy rate stood at 16.2 percent in the fourth quarter of 2018, worst in the region and slightly better than a year earlier, according to a report from CBRE. In Clayton, which demands much higher rents, vacancy was about 5.5 percent.

"The downtown office market is weak," said Amos Harris, principal at Spinnaker St. Louis, whose holdings include the MX District along Washington Avenue. "The civic community has not focused on doing the public infrastructure work, making downtown feel like it's a place you want to be," particularly with streetscapes.

The hurting may not be over for 100 N. Broadway. The building had a 2018 appraised value of $18 million, down from $26.7 million in 2014, according to the financial filings.

A recent loan-servicer report says that Nestlé Purina has at least three leases in the building. A major chunk, though — 85,188 square feet — is up for renewal in May.

A Nestlé Purina spokesman said that lease would not be renewed, "and we plan to relocate some associates back to our Checkerboard Square campus."

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