The debt is coming due on many Twin Cities office buildings

Foreclosures, which already are hovering near record highs, are at risk of rising even further.

Published by The Minnesota Star Tribune

Written By Jim Buchta and Katie Galioto

Empty cubicles aren’t the only thing haunting office building owners in the Twin Cities these days.

Billions of dollars in office loans have come due, leaving owners scrambling to secure new loans as declining property values and high vacancy rates spook prospective lenders. It’s a situation that’s left owners of buildings, including the IDS Center in downtown Minneapolis, with limited options.

Some are giving up, fueling a rash of buildings selling at steep discounts. Office building foreclosures, which already are hovering near record highs, are at risk of rising even further. The resulting decline in values are forcing homeowners to shoulder an even greater share of local governments’ growing property tax needs.

In the Twin Cities metro, there’s now more than $2 billion in outstanding office debt from loans that should have been paid off between 2023 and 2025, according to a Transwestern analysis of a subset of mortgages that are packaged and sold to investors. Another $1.3 billion is due this year.

The total amount of office debt likely is much higher because it’s notoriously difficult to collect data on loan maturities, said Jesse Tollison, research manager for Transwestern’s Minneapolis office.

“All lenders are making moves to reckon with post-pandemic realities, but there’s no single formula everyone’s following,” Tollison wrote in an email.

Unlike homebuyers, who typically take out 30-year mortgages, most office buildings are financed with short-term loans, often with floating interest rates. Since the beginning of the war in Iran, borrowing costs have risen, adding to the woes of developers like Scott Tankenoff, whose loan on Pentagon Park, a sprawling office complex in Edina, came due.

As time to refinance approached, the obvious choice was the lender who held the current mortgage. Though the loan on the property was in good standing, payments were current and the property’s finances were in good shape, they took a pass, Tankenoff said.

With just months before the loan came due, Tankenoff was able to find only a few prospective lenders.

“Pre-pandemic, there would have been a line around the corner, they’d be around the block,” he said. “The problem that a lot of people are having is that they want something the marketplace can’t give them.”

Ultimately, St. Louis Park-based Bridgewater Bank financed the deal.

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