The prominent 1500 Market Street office complex in Philadelphia, Nightingale Properties’ largest holding in the city, has been placed into receivership. This development follows closely on the heels of issues surrounding Nightingale’s Atlanta office building investment, signaling deepening financial troubles for the New York-based landlord.
A consent order filed in Eastern District federal court on April 20th revealed that the 2.2 million-square-foot office complex located at 1500 Market Street is now under receivership. This action was initiated after Wells Fargo Bank, acting as trustee for the $390 million securitized loan associated with 1500 Market, filed for foreclosure in January.
Wells Fargo’s foreclosure complaint detailed that upon the loan’s maturity on December 9th, Nightingale Properties still owed over $375 million in principal, along with nearly $3 million in unpaid and default interest. Prior to this, 1500 Market Street had already been placed under special servicing. A request for loan extension in October 2022 was denied due to the property’s failure to meet debt yield thresholds, indicating early signs of financial strain.
Financial analysts at Morningstar estimated in February that the occupancy rate at 1500 Market Street had fallen to 69%, resulting in a cash flow 33% lower than initial projections from 2021. The property’s value was estimated to have decreased by at least $34 million from its purchase price, highlighting the severity of the financial downturn.
Location and History of 1500 Market Street
Constructed in 1974, 1500 Market Street is a landmark in Philadelphia’s central business district. The complex comprises two towers, 36 and 43 stories respectively, rising from a four-story podium. Its location at 1500 Market Street is exceptionally strategic, directly across from Philadelphia City Hall and situated above the 15th Street station on the Market-Frankford Line, a major subway line in the city.
Previously known as Centre Square, 1500 Market Street is easily recognizable by the distinctive clothespin sculpture located in front of the building. Nightingale Properties, in a joint venture with Wafra Capital Partners, acquired 1500 Market Street for $328 million in 2017. In 2019, Nightingale initiated a multimillion-dollar renovation project and refinanced a previous $240 million loan with a new $368 million mortgage from JPMorgan Chase. Shortly after, an additional $22 million was borrowed. JPMorgan Chase later sold the loan as a single-asset, single-borrower security.
Receivership and Future Control
Following months of negotiations between Wells Fargo, Nightingale, and Wafra, CBRE asset servicer John Svorcek was appointed as the receiver for 1500 Market Street in the consent order. While Nightingale and Wafra technically retain ownership, the receiver now has the legal authority to sell the property at 1500 Market Street if directed by the lender, CBRE. A CBRE spokesperson declined to comment on the ongoing situation.
Proceeds from 1500 Market Street will be directed to CBRE and the CMBS shareholders until the outstanding debt of nearly $380 million, plus accrued interest and costs, is settled. Nightingale’s 2023 budget for 1500 Market Street projected a net operating income of $1.4 million to $2 million per month, indicating the property’s potential despite its current financial predicament.
Wafra Capital Partners, backed by Kuwaiti interests, holds equity in several other Nightingale properties, including other large office buildings in Philadelphia: 1635 Market St., 1835 Market St., and 1500 Spring Garden St. The receivership of 1500 Market Street is indicative of broader financial challenges facing Nightingale Properties.
Broader Financial Troubles for Nightingale Properties
Beyond the issues at 1500 Market Street, Nightingale Properties is facing accusations from real estate crowdfunding platform CrowdStreet. CrowdStreet alleges that Nightingale and its CEO Elie Schwartz misappropriated a significant portion of the $54 million raised on the platform for the acquisition of the Atlanta Financial Center, a 915,000-square-foot office building located in Atlanta’s Buckhead district. Neither Elie Schwartz nor Nightingale Properties have issued a public response to these allegations despite repeated requests for comment.
The unfolding situation at 1500 Market Street and the allegations surrounding the Atlanta Financial Center highlight a period of significant financial instability for Nightingale Properties, raising concerns about the future of their extensive real estate portfolio.
