Owners of major office complex in CT city face foreclosure on multiple fronts; sale narrowly averted

In a sign of deepening troubles in downtown Hartford’s office market, the partnership that owns the majority of Constitution Plaza is fending off foreclosure on at least two fronts, including narrowly averting a foreclosure sale in the last month by one of its creditors, according to court filings in New York.

The plaza’s owner, New York-based Constitution Plaza Holding LLC through an affiliated entity filed for Chapter 11 bankruptcy protection in early February, just as one of its creditors, a real estate investment trust headed by Trawler Capital Management of New York , was set to launch a foreclosure auction. The filing on Feb. 7 halted the sale, but is being contested in court by the investment trust, which has taken over a $10 million loan on the property.

At the same time, the Monsey, N.Y.-based owner, including principal Aaron Berger, faces a foreclosure on a $65 million loan in courts in Connecticut.

According to court filings, the owner has been unable to negotiate extensions on either loan, both of which matured in May, 2023.

While the two office towers at One and 100 Constitution Plaza are well leased at 90% or better, according to commercial real estate brokers, other structures are struggling within the 7-acre complex.

The building at 200 Constitution Plaza is vacant, most recently targeted for an apartment conversion that fell though. In addition, parking revenue for the more than 1,800 spaces below the plaza slid during and after the pandemic.

The financial woes are the latest for Constitution Plaza, its roots in 1960s Urban Renewal, which has struggled to find its niche in the half century since it was built.

In the last decade, some progress has been made. A vacant hotel was successfully converted into apartments but the site of the now-razed WFSB broadcast studios is for sale and remains a vacant lot. Those two properties have separate ownership and are not involved in the foreclosures.

The pandemic shift away from work at the office in favor of home has taken its toll at the plaza as it has elsewhere in Hartford.

At least one other high-profile office tower in downtown Hartford — 20 Church Street, the “Stilts Building” — has been mired in a foreclosure. Owned by downtown’s largest commercial landlord, Shelbourne Global Solutions LLC of Brooklyn, N.Y. has been in court in the matter for 18 months, as it seeks to refinance what it owes on the building.

Downtown office vacancies are now at a 35-year high , the most since the devastating commercial real estate downturn of the late 1980s, according to commercial real estate services firm CBRE. Those vacancies, at 33% at the end of last year could rise to 37% in 2024, according to CBRE. Last year marked the third straight year in which office tenants shed more space than they leased.

The office troubles extend far beyond Hartford to the rest of Connecticut and nationwide.

With commercial property values already under pressure with higher vacancies in Hartford, those troubles are compounded by foreclosures which also push values down. For the city and its residents, there is the prospect of a cascading impact leading to lower tax revenues and increased financial challenges for running the city.

The plaza’s current owners bought a majority of plaza in 2015 for $71.1 million out of a previous foreclosure. They later purchased another building on 7-acre property — 200 Constitution — for $2.6 million in 2016. 200 Constitution is among the properties in the city with the highest unpaid property tax bills.

In its filing with the New York federal courts, the owners of Constitution Plaza note that the creditor that has taken over the $65 million loan, Wilmington Trust National Association, “is retaining all rent collections, and thereby preventing (the owners) from paying various other obligations, including any other” payments on the $10 million loan.

“The ultimate goal of the bankruptcy proceeding is to continue negotiations for an extension of (the mortgage loans) without the specter of an imminent foreclosure sale,” the filing states. “The prospect of foreclosure has and will repress and hamper leasing activity at the office property to the detriment of all concerned.”

The push to extend the loans comes in a tough commercial lending environment for office properties.

“The goal is to restructure and extend the mortgage, address the concerns of tenants and re-stabilize the property,” Kevin Nash, an attorney representing the plaza owners in the New York case. “We have no intention other than to maintain the property.”

The Chapter 11 filing would allow a restructuring of debt. But the real estate investment trust is seeking to have that dismissed or converted to a Chapter 7 liquidation. A hearing is scheduled April 4 in New York.

This story was updated at 1:30 p.m. to include details on leasing at Constitution Plaza.

Kenneth R. Gosselin can be reached at kgosselin@courant.com .