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March 13, 2024

Fighting foreclosure, Shelbourne says lenders are withholding rents needed to keep 23-story Hartford office tower running

PHOTO | COSTAR The Stilts Building at 20 Church St., in downtown Hartford.
By Michael Puffer
See related stories: Hartford’s struggling office sector shows cracks with new foreclosure, falling property values.
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Shelbourne Global Solutions is claiming lenders trying to foreclose on its 23-story “Stilts Building” office tower in downtown Hartford are denying access to the property’s rental income, which is used to pay basic operating expenses.

The move, Shelbourne contends, aims to force the Brooklyn, New York-based real estate investment and development firm to surrender the building.

“They are trying to force us to turn over the keys,” said Shelbourne’s Chief Financial Officer Zach Feldberg. “That’s their goal. We are obviously fighting that and trying to figure out how the tenants’ interests and our interests are protected.”

Shelbourne, on Feb. 12, filed a lawsuit against Wells Fargo Bank, its special servicer PNC Bank, and two other companies claiming it has been wrongly prevented from tapping rental income to cover property operating expenses.

It’s a separate case from the June 2022 foreclosure lawsuit Wells Fargo filed against Shelbourne. That earlier suit contends Shelbourne missed several monthly payments on a $31 million mortgage for the Stilts Building, at 20 Church St. In May 2022, Wells Fargo sent a letter to Shelbourne demanding full repayment of $25.7 million in outstanding debt.

Shelbourne said it has attempted to refinance the building’s debt, but has been unsuccessful so far because of an increased vacancy rate and lenders’ pull back from the office market.

In its recent court complaint, Shelbourne contends PNC is not providing funds for operations, “jeopardizing the welfare and well-being of the tenants, and preventing the plaintiff from fulfilling its leasehold obligations to the tenants.”

This lack of funding has threatened basic building services, including electricity, garbage collection and security, Shelboune contends. The lender is also refusing to pay broker commissions, according to Shelbourne.

“What they are doing is basically stifling the market,” Feldberg said. “Brokers refuse to show the building. That’s extremely concerning to us.”

Shelbourne estimates it costs about $450,000 monthly to run 20 Church St., including taxes but not debt service.

In addition to Wells Fargo and PNC’s Midland Loan Services arm, Shelbourne’s suit names Computershare Trust Co. and Shrewsbury River Capital LP as defendants. According to Shelbourne’s filing, Computershare Trust Co. has acquired Wells Fargo’s trust business and may be the proper holder of the mortgage note.

A Wells Fargo spokeswoman declined comment, referring questions to its special servicer. A PNC/Midland spokeswoman said the company does not comment on its customers or their business.

Attorney Joseph J. Cherico, of law firm McCarter & English, who is representing Wells Fargo in the 2022 foreclosure case, also did not respond to a request for comment.

Feldberg said the Stilts Building had a 5% vacancy rate when Shelbourne bought it a decade ago for $44.4 million, but occupancy has since dropped to 57%. He also noted there are “major leases” coming up for renewal in the coming three years.

The Stilts Building currently has about 20 tenants, including law firms Cantor Colburn and Hinckley Allen, Big Four accounting firm Ernst & Young and CareCentrix, according to court records.

Feldberg said the loan is part of a commercial mortgage-backed security, funded with investor money through Wall Street. He contends it’s controlled by companies motivated by fees and with little interest in the property’s outcome.

Feldberg said the stress on office properties across the nation will eventually demand attention from federal lawmakers.

Falling property values and rising expenses are going to prompt owners to surrender thousands of office buildings, he predicted.

“It’s wrecking the market and this damage is not yet understood,” Feldberg said.

See related stories: Hartford’s struggling office sector shows cracks with new foreclosure, falling property values.

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