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One of America’s most famous cities is heading for a downtown catastrophe as its office towers hemorrhage tenants – and owners default on massive loans.
Commercial real estate in New Orleans, Louisiana, is in crisis, with falling occupancy rates colliding with a wave of debts coming due.
Two of the city’s landmark skyscrapers – the Hancock Whitney Center and 400 Poydras Street – are the latest to fall into what’s known as ‘maturity default’, meaning the borrower has reached the end of the loan term but can’t repay or refinance it.
The trend began last year and is expected to worsen as roughly $400 million in office-building loans – financing more than half of New Orleans’s premium, or ‘Class A,’ towers – come due.
‘It’s a perfect storm,’ said Mike Siegel, president of Corporate Realty, the city’s biggest office-leasing firm.
‘You have major tenants moving out, and concurrently you have the mortgage coming up. It’s distressed both a little bit on the real-estate side and the capital-markets side.’
According to Corporate Realty, business occupancy stood at 79 percent at the end of 2024, about the same as the prior year but down eight points from 87 percent before Covid.
Higher operating costs and soaring interest rates are deepening the crisis.
New Orleans has seen high levels of empty office buildings as it is still feeling a hit from the pandemic
The Hancock Whitney Center, owned by Hertz Investment Group, has become the prime example of the city’s downtown woes.
According to nola.com, its $108 million mortgage slipped into maturity default in July, just as longtime tenant Shell Oil prepared to abandon a third of the building’s space for a smaller, cheaper headquarters in the new Shell Plaza.
When Shell departs in early 2027, occupancy could plunge from 80 to 50 percent, a potentially fatal hit to loan repayments.
Siegel said the tower still earns enough to pay interest but not to cover the balloon payment due at maturity. It’s unclear how Hertz will find a new lender willing to refinance an aging skyscraper soon to be half-empty.
Real-estate data firm Trepp warned early last year that $400 million in maturing office loans could upend the local market.
Mike Siegel, president and director of office leasing at Corporate Realty, said the combination of pressures faced by the New Orleans real estate market is ‘a perfect storm’
Eight of the city’s 15 major office buildings are financed through collateralized mortgage-backed securities (CMBS), complex Wall Street loans that bundle property debt into bonds sold to investors.
Unlike bank loans, CMBS debt isn’t personally guaranteed by the borrower; the property itself is the only collateral.
That makes the trusts that manage these loans ruthlessly cautious: if they see trouble, they can seize rental income, demand pay-downs, or freeze expense accounts.
As these loans mature, landlords must refinance at far higher rates – in many cases double their current interest – if they can find a lender at all.
Five of the eight towers with maturing CMBS loans belong to Hertz Investment Group, including the Hancock Whitney Center and 400 Poydras.
In 2023, another Hertz property, the Energy Centre at 1100 Poydras Street, became the first domino to fall.
Its $56 million loan went delinquent, the building was foreclosed, and new owners extended the debt on similar terms, according to Chris Dozier of the Union Advisory Group. Whether others can pull off the same escape remains uncertain.
Hertz did not respond to Daily Mail’s request for comment.
Trepp reports that CMBS delinquency rates nationwide hit a record 7.3 percent in August, the sixth straight monthly rise.
In the office sector, delinquencies reached 11.7 percent, an all-time high. September saw only a marginal improvement, the first dip in six months.
The Hancock Whitney Center is a prime example of the debt crisis facing the New Orleans office market
Corporate Realty represents many important office buildings in New Orleans, including Place St Charles (pictured) which has 212,064 total square feet of space at a lease price of $20 to $24 per square foot
The company also represents 1055 St Charles Ave (pictured), which was built in 1999 and is on sale for $11.4 million
Another one of the company’s listings is for 3445 N Causeway Building in Los Angeles, with 12,920 square feet of total available space at a lease price of $21 per square foot
According to Siegel, New Orleans has plenty to offer newcomers and the city should try to create more demand for office space to alleviate the market’s crisis
New Orleans is a small city with a population below 500,000 so movements in the market are felt more heavily
Such defaults ripple through city economies by choking investment, depressing property values and tax revenues, and driving out higher-spending tenants.
While many U.S. cities face similar pressure, New Orleans is suffering more because so much of its skyline was financed with CMBS debt.
With a population of just 360,000 and only 15 Class A buildings in high-quality, prime locations, the loss of even one or two anchor tenants can devastate the downtown economy.
Most of those loans were written between 2015 and 2020, when interest rates were low. Refinancing today could send payments skyrocketing.
Siegel says the only real fix is reviving demand. ‘If the city can attract new tenants and white-collar workers, it’ll help with refinancing,’ he said. ‘We can stem the tide by creating internal growth – getting more people to see the beauty and the benefits of being in New Orleans.’
Despite the grim numbers, he remains cautiously hopeful.
‘When there’s disruption and problems like this, there are opportunities. We’re gonna have to be resilient,’ he said, recalling the city’s comeback from Hurricane Katrina.
‘The next few years will be really bumpy – you don’t turn a big ship around quickly. But we’ve got strong tenants, good buildings, and owners who can navigate the turmoil. Long term, I think we’ll be all right.’
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This article was originally published by a www.dailymail.co.uk . Read the Original article here. .