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Updated: July 3, 2024 Deal Watch

M&T Bank taking offers on ‘non-performing’ $31M loan backed by major Class A New Haven office tower

COSTAR 555 Long Wharf Drive, New Haven

Cracks in the state’s office market are continuing to show signs of widening. 

Buffalo, New York-based M&T Bank has hired commercial real estate services firm JLL to sell a $31 million non-performing loan backed by a high-profile Class-A office building in downtown New Haven.

The office building, at 555 Long Wharf Drive, is not in foreclosure. But a $40 million loan issued in 2010 to the building’s landlord, developer Fusco Corp., matured last year and was “non-performing under maturity default,” as of Feb. 2, 2024, according to a listing by JLL.

The loan, which most recently featured interest-only payments at a rate of 8.5%, has an unpaid balance of nearly $31 million, according to JLL. The loan was originally issued by Bridgeport-based People’s United Bank, which was acquired in 2022 by M&T Bank. 

The 15-floor, 418,595-square-foot office tower, which sits on the waterfront, was 43.2% occupied as of May 14, according to JLL. 

M&T Bank declined to comment on the pending loan sale.

JLL and Fusco didn’t return calls and/or emails seeking comment. 

Limiting exposure

Banks that carry office assets have been closely monitoring vacancies and leases amid broader struggles of the office market coming out of the pandemic. Some banks, like M&T and Waterbury regional lender Webster Bank, have chosen to sell off loans backed by office buildings to limit their exposure.  

Higher interest rates combined with higher vacancy rates and lower property values have made it increasingly difficult for landlords to refinance debt that is reaching maturity. 

On the flip side, lenders of struggling office properties have to decide whether it’s best to foreclose and take on building ownership and maintenance costs, or work out a deal that might require them to take a haircut.

Real estate tracker Trepp Inc. reported in 2023 that nearly $1.5 trillion in commercial mortgages are coming due in the next three years.

Buyer options

Fusco Corp. is a well-known real estate development and management firm that is headquartered in the 555 Long Wharf building. The company works on projects ranging from corporate headquarters, college campus renovations, healthcare and sports facilities, both public and private.

According to its website, Fusco manages over 5.5 million square feet of Class A office space, retail, medical offices, transportation centers and state and government buildings.

In 2021, Fusco proposed a major apartment development along the New Haven waterfront.

Robert Motley

Robert Motley, a senior director with real estate firm Cushman & Wakefield, used to be the leasing agent for 555 Long Wharf. He said the building has historically performed well, but the pandemic caused tenants to downsize office space, increasing the building’s vacancy rate.

With about 234,000 square feet of vacant space, it will likely take years to lease up the building, unless one major tenant comes in to take up a large chunk of space, he said. But finding those large-space occupiers in today’s market is difficult, Motley said.

The average office tenant in New Haven occupies between 5,000 to 8,000 square feet, Motley said. 

He said the mortgage will likely sell at a significant discount.

A buyer of the mortgage would have several options, including restructuring the loan with Fusco or potentially pursuing foreclosure, Motley said. 

Banks would choose to try to sell the mortgage instead of pursuing foreclosure because they don’t want to own the property, Motley said.

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