**Starwood Capital Group’s Default on $212.5 Million Mortgage Signals Distress in US Commercial Real Estate**
**Barry Sternlicht’s Starwood Capital Group in Default on Tower Place 100 Mortgage**
Barry Sternlicht’s Starwood Capital Group has defaulted on a $212.5 million mortgage backed by the Tower Place 100 office tower in Atlanta’s Buckhead district. The mortgage matured on July 9, and Starwood was unable to refinance or pay off the debt. The lenders have hired counsel and are currently negotiating an agreement.
**Mounting Distress in US Commercial Real Estate**
The default on the Tower Place 100 mortgage is another sign of mounting distress in the US commercial real estate market. Corporate landlords, such as Blackstone Inc. and Brookfield Asset Management Ltd., have ceased making payments on office buildings that they consider to be money-losers. This trend has been driven by increasing vacancies resulting from the growing acceptance of remote work. Additionally, borrowers’ financing costs have risen due to the Federal Reserve’s interest rate hikes aimed at curbing inflation. On top of all this, property values have declined.
**Rising Delinquency Rate for Offices with Commercial Mortgage-Backed Securities**
The delinquency rate for offices with commercial mortgage-backed securities has surged from 1.7% in June of the previous year to 4.5% in June of the current year, according to financing-data firm Trepp. Most CMBS financing is non-recourse, which means that owners can walk away from properties without exposing themselves to further financial damages.
**Tower Place 100: Leasing and Tenants**
As of the end of 2022, Tower Place 100 is 62% leased, a significant drop from 87% in 2018 when the loan was originated. One of the building’s largest tenants is WeWork Inc., the struggling office-sharing company co-founded by Adam Neumann.
**Rising Office Vacancy Rates in Atlanta**
The Atlanta area’s office-vacancy rate increased to 22.4% in the second quarter, surpassing the US average of 20.6%, according to brokerage firm Jones Lang LaSalle Inc.
In conclusion, Starwood Capital Group’s default on the Tower Place 100 mortgage highlights the distress that US commercial real estate is facing. The combination of remote work, rising financing costs, declining property values, and high office vacancy rates has contributed to the difficulties witnessed in the sector. With negotiations currently underway between the lenders and Starwood, it remains to be seen how this situation unfolds.