The $90 million commercial mortgage-backed securities debt connected to a mixed-use property on Third Street Promenade landed in special servicing before its December maturity date due to imminent monetary default, according to Morningstar Credit.
The seven-story, 130,000-square-foot office, multifamily and retail building in downtown Santa Monica out-performed until the loss of two star tenants — WeWork and AMC Theaters — pushed occupancy to 69 percent. WeWork canceled its lease in connection with bankruptcy, and AMC didn’t renew.
The owner and borrower is an entity connected to Beverly Hills-based Maxxam Enterprises. The Real Deal previously reported Maxxam purchased the property for $35.5 million in 2003; and OpenStreet Capital holds an ownership interest. Maxxam Enterprises did not immediately respond to a request for comment.
The building at 1453-1457 3rd Street Promenade, called Promenade Gateway, is worth $180 million and hasn’t lost value since underwriting a decade ago. But the decline in occupancy cut into income and cash flow, which each dropped to $3 million in June, compared to almost $9 million two years ago.
The latest servicer commentary before the refinancing loan was transferred to special servicing, indicated that the borrower has been marketing the property since the second quarter of last year and is looking for tenants. The largest occupants include Luma Pictures, Like Labs, Lululemon, Riverside Partners and Rialto Capital Management, which account for 42 percent of the space.
The property has 61,000 square feet of office, 33,300 square feet of retail and 32 multifamily units.Third Street Promenade has been in an economic decline since the pandemic. Shops, bars and restaurants have less foot traffic, resulting in empty storefronts. That got politicians’ attention: The city council in May approved a proposal to turn the area into an entertainment zone, meaning people could buy alcohol from businesses and drink their drinks outside — very Vegas-esque. The jury is still out on whether booze can revive the commercial district.
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