Commercial Real Estate and Foreclosures and Banks and Law Firms and M&I Bank and Mortgages and Real Estate & Retail

Lender claims M&I Plaza when it fails to sell at auction

June 30, 2008

A Maryland company has taken ownership of downtown's 28-story M&I Plaza just three months before a major tenant departure leaves the skyscraper 70-percent vacant.

The new owner is CapitalSource Inc., a commercial finance and investment firm based in Chevy Chase, Md. It had been a lender to the former owner, which defaulted. CapitalSource has hired the local office of CB Richard Ellis to manage the 425,000-square-foot office tower, and is close to choosing a leasing agent.

The 21-year-old building has struggled to attract tenants in recent years and will lose its largest occupant--Indianapolisbased law firm Bose McKinney & Evans--to the nearby Chase Tower in September.

The departure will drop the occupancy level for the city's sixth-largest office tower from 55 percent to about 30 percent, said Jon Owens, a principal in the local office of Colliers Turley Martin Tucker who is vying for the listing.

Still, Owens believes the building is well-positioned to add tenants: It offers by far the largest block of Class A space on the market at a time when competitor buildings such as Chase Tower and OneAmerica Tower are virtually full and another competitor--One Indiana Square--is in the throes of a messy, multiyear construction project to replace its facade.

"M&I Plaza will be in a position to attract anyone in the market who is considering Class A space alternatives," Owens said. "With a new ownership attitude and a capable leasing and management team in place, it's just a matter of time before the building will realize new success."

The former owner was a group that included New York-based Crown Properties Inc. and Greenfield Partners of Connecticut. CapitalSource took charge after a June 3 auction failed to produce a bidder willing to pay more than the Maryland firm was owed. The loan amount was unclear, and a CapitalSource spokesman did not respond to questions from IBJ.

The attorney who coordinated the auction, Erin Apstein of Brown Rudnick LLP in Boston, confirmed that the building has changed hands but would not elaborate.

Property records indicate the building, at 135 N. Pennsylvania St., still is owned by a company called Crown Green Associates LLC. But that company now is controlled by the new owner, CapitalSource, according to Gordon Hendry, director of asset services in the local office of CB Richard Ellis.

A group led by Crown apparently still owns the vacant 15-story Consolidated Building immediately south of M&I Plaza.

Crown had tried for more than a year to sell the tower, which got a new name last year after the Milwaukee bank M&I acquired First Indiana Bank. But the owners couldn't find a buyer willing to pay anywhere near the rumored asking price of $60 million.

The building is valued at $66 million for tax assessment purposes, but it has traded for less. It sold for more than $50 million in 1997 and again for about $38 million in 2002, when it was 70-percent occupied.

Brokers and other observers say an absentee owner and unresponsive leasing agent played a role in the building's struggles.

"The building might as well have shut its doors to prospective tenants," one broker said.

CapitalSource already is taking a different approach, the observers say, in part out of necessity: Continued turmoil in the credit markets coupled with a high vacancy rate will make a quick resale of the property difficult.

The 8-year-old company has struggled amid the lending crisis. Its shares are off more than 50 percent from their 52-week high and took another big hit June 23 after the company said it lost $36 million on the sale of $1.5 billion in mortgage-backed securities.

Earlier this month, CapitalSource said it would sell an additional 30 million shares to buy depressed assets, a move it described as opportunistic but some see as desperate.

The company manages a $20 billion portfolio and has a staff of more than 500, including Stephen Goldsmith, the former mayor of Indianapolis, who serves as director of the firm's Infrastructure Finance and Investment Group.

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