Regions Tower owners are the target of a foreclosure complaint

Indianapolis, Indiana – A notable office building in downtown Indianapolis has a mortgage holder who has filed for foreclosure against the building’s owner.

The National Association for Wilmington Trust has filed a lawsuit in Marion Superior Court against NG 211 N. Pennsylvania St LLC and Regions Tower MF LLC, alleging unpaid mortgage and other debts totaling about $75 million.

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

One of the tallest office towers in downtown Indianapolis, Regions Tower rises to a height of 36 floors.

According to one analyst, the foreclosure notice might be a sign of impending trouble and a sign of how fragile the downtown office market is.

”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.”

According to Michel, the Regions Tower owners’ foreclosure crisis could be caused by several factors, including maturing loans that require refinancing at much higher interest rates, the lending market’s waning interest in urban office properties, a sign of the softening office market in downtown Indianapolis, or any combination of these.

”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.”

Tens of thousands of office workers have not returned to the Mile Square, and many of those who have are limited to working Tuesday through Thursday. As a result, foot traffic in Downtown Indianapolis is finding it difficult to recover to half of what it was before to the 2020 epidemic.

”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 owners of high-rise buildings experience a mortgage crisis similar to that of Regions Tower, signs for sale may appear on several downtown buildings. These properties may be had for a great deal, but lower property values mean less money coming in from property taxes to maintain Marion County’s neighborhoods and other services.

”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.”

To persuade more people to live downtown, developers have been successful in converting two famous office buildings—the Gold Building and the former AT&T building—along Ohio Street into residential spaces.

It was noted by Michel that not every office building is suitable for conversion to residential space.