PPL Plaza in Allentown appears headed for foreclosure

With its mortgage in default and no refinancing on the horizon, The Plaza at PPL Center in Allentown, Pa., appears headed for foreclosure.

The trustee overseeing the building's mortgage has ordered its attorneys to begin the foreclosure process, reported Trepp LLC, a New York City firm that monitors loans that are included in commercial mortgage-backed securities.

"Borrower has yet to submit a loan modification proposal," Trepp reported in its April update on PPL Plaza, relaying commentary of the special servicer in charge of the loan. "Trust Counsel has been instructed to proceed with foreclosure."

The owner, a group called The Plaza at 835 W. Hamilton St., which purchased the property for $83.5 million in 2007, missed a $67.4 million balloon payment on Dec. 1, sending the loan into default.

A foreclosure, which would be filed in Lehigh County Court, would move the building closer to a change in ownership, said Brent Ambrose, a professor at Penn State's Smeal College of Business who specializes in commercial mortgage-backed securities.

"This could also be a negotiating ploy," Ambrose said, designed to put pressure on the owner to renegotiate payment terms.

If the trust initiates foreclosure, it would proceed like a traditional foreclosure except that the court would appoint a receiver to collect rent from tenants while it progresses. The property would go up for sheriff's sale. The current balance on the mortgage is $67 million, according to Trepp.

"It goes to a court, there would be a determination that the borrower has defaulted and the property would be sold to satisfy the lien," Ambrose said.

Buyers are often companies that are experts in disposing of so-called distressed assets, he said.

The Plaza's primary tenant, Talen Energy, has been shedding employees following its acquisition by New York private equity firm Riverstone Holdings. The company's lease, locked in at an above-market rate when the building opened in 2003, ends in April 2018 and has not been extended.

Talen officials have not revealed where they plan to locate the company's headquarters after that date. The company's state tax payments are a critical component of revenues collected in Allentown's Neighborhood Improvement Zone and used to pay construction loans on PPL Center Arena.

Documents obtained by The Morning Call show that Talen contributes $13.7 million a year in NIZ taxes, almost single-handedly providing enough money to pay the arena's annual debt of $15.3 million, even before the zone's other 600 businesses chip in.

If the building goes into foreclosure and is acquired by a new owner at a lower price, it would allow the new owner to offer lower rents, making the building more competitive with new office towers being built downtown with the aid of tax subsidies offered in the NIZ.

That could help the new owner retain Talen or find new tenants.

Before the NIZ was created in 2010, PPL Plaza was downtown Allentown's premier office property. It opened in 2003, custom built for PPL Energy Supply, boasting state-of-the-art features that earned it the coveted LEED gold certification for energy efficiency.

The Plaza at 835 Hamilton St. filed a federal lawsuit in 2016 alleging that the tax subsidies offered in the NIZ and the way it was administered by its oversight board, the Allentown Neighborhood Improvement Zone Development Authority, placed PPL at an unfair competitive disadvantage.

That lawsuit is pending.

Tribune Content Agency
Foreclosures Distressed Loan modifications
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