By Mitchell Schnurman
mschnurman@ star-telegram.com
As a suburban office park, Solana has always been a trophy project. It has a great location, striking architecture, national-name tenants and a knack for making big plays.
Now it's in deep trouble, facing foreclosure, for the most conventional reasons: too much debt and too much recession.
This month, Wells Fargo Bank took over 122 acres of raw land in Solana, buying it at a foreclosure auction for a quarter of the original loan amount. The future of the much larger Solana business park is still up in the air, but the land sale is an indicator of the mounting financial pressure.
Lenders recently petitioned a judge to appoint a receiver to oversee the Solana buildings. His job is to make sure that vendors are paid, repairs are made and Solana is ready for a possible sale. Maguire Partners, the developer that opened Solana in 1989, didn't contest the appointment.
Maguire says it's focusing on restructuring the debt. It hopes to bring in enough new money to revamp buildings, rework the loans and maintain control as everyone waits for commercial real estate to recover.
Five years ago, more than 95 percent of Solana's 1.9 million square feet of office space was leased. Today, the vacancy rate is pushing 40 percent. Next month, one of Solana's largest clients will make its last lease payment, and that's the triggering event in this episode.
To understand how far Solana has fallen, consider this: In December 2006, at the peak of the real estate boom, the project was performing so well (and money was so easy to get) that Solana borrowed $395 million against its best assets.
Solana is now worth about $188 million, according to Trepp Llc., a New York research firm that appraises the real estate underlying commercial mortgage-backed securities.
So what happened to the borrowed money? Tom Allen, partner and president of Solana, said the funds were used to buy back one office building, expand and upgrade a hotel on the site, prepare office space for a major tenant and refinance existing debt.
"We did the financing for the right reasons," Allen said. "Every dollar, and more, was invested in this project."
That's better than cutting a check to the owners or investing in Greek bonds, but it still makes for a dicey workout. The loan was sold with a bundled package of commercial mortgages, securitized in the same way as the ill-fated subprime residential mortgages that were scooped up by investors around the world.
If just one or two banks held the note, Solana might have been able to modify the loan already. Allen said the company contacted the lender group more than two years ago because the coming cash flow crunch was already apparent.
But the loan has dozens, maybe hundreds, of investors, who are led by a servicing group. In this arena, restructurings don't usually happen until the last minute.
Ultimately, investors will decide whether to cut a deal with the current owners or foreclose on the property. Observers believe a resolution will come soon, maybe within a few months.
Solana still has great assets. It includes 14 buildings on both sides of Texas 114, about eight miles from Dallas/Fort Worth Airport, with an address in both Southlake and Westlake. That's some of Tarrant County's most prime territory, adjacent to top-flight public schools and housing and right in the path of growth.
The architecture is a departure from the usual Texas style, and that's part of the charm. It's been widely hailed for the colorful palette, public art and campus-style stucco buildings that seem to rise out of the prairie. Architects Romaldo Giurgola of New York and Ricardo Legorreta of Mexico created a place that looks more like a resort than an office complex, a reviewer wrote soon after Solana opened.
The development "stands as one of the few suburban projects anywhere to offer intensity of architectural experience without descending into irrelevance and pretension,"
The New York Times review said in 1989.
The design style has a limitation: It's best suited for large users who rent entire buildings or a complete floor. Solana has just 23 tenants, whereas most projects this size would have 100-plus.
But Solana has a history of landing the big fish. It survived the real estate bust of the early 1990s because one tenant, IBM, was a partner in the original deal and leased most of the space. When IBM began cutting back in the mid-'90s, Solana signed a big lease with Sabre, the travel company.
As IBM retrenched further, Solana landed the mortgage division of First American Financial Corp., a California-based company that provides title insurance and real estate services. The 700,000-square-foot lease was one of the largest real estate wins of 2005.
At the time, Solana was sitting pretty, but it would soon make two crucial moves that would backfire. Sabre had built its own headquarters on nearby land bought from Solana, and it was selling the building it occupied at 1 East Kirkwood Blvd. in the heart of project.
Solana bought it and leased back the space to Sabre for five years. Three months after Solana closed on its big loan, two private equity firms bought Sabre and took it private. In such acquisitions, it's common for companies to get smaller, and Sabre was soon deploying fewer and fewer people in the leased space.
More than two years ago, it was clear that the tenant wouldn't renew, and Solana began marketing the building's 375,000 square feet. But with most companies retrenching in a down economy, there weren't any takers -- and conditions haven't improved much.
Solana also pumped more than $25 million into its hotel, operated by Marriott. It refurbished 198 rooms and added 97, plus another ballroom. Then business travel dried up.
Hotel traffic is recovering, but high vacancies remain a killer.
Citigroup also closed a data center at Solana, giving up about 50,000 square feet.So once more, Solana is hunting for that one company to lease an entire building. This time, though, that won't be enough to turn around its fortunes.
Lenders have to buy the pitch, too.
Mitchell Schnurman's column appears Sundays and Wednesdays.817-390-7821Twitter: @mitchschnurman
Looking for comments?
