Unable to reach agreement on an overdue $50-million loan, Connecticut General Life Insurance has started foreclosure proceedings against a 12-story twin office tower built by Koll Co. and Columbia Savings & Loan in 1988.
The insurer plans to auction off the Irvine property Oct. 18 on the steps of the Orange County Courthouse in Santa Ana, according to documents filed with the county.
The property, known as the East Tower, is a polished granite building that is one of twin 280,000-square-foot structures in the Koll Center Irvine North at Main Street and MacArthur Boulevard. Its twin, the West Tower, is being sold by Wells Fargo Bank, which foreclosed on the property in April. It was also built by a Koll-Columbia partnership.
Koll Co. tried to restructure a construction loan it had taken with Connecticut General, a wholly owned subsidiary of Cigna Corp., but to no avail, said Lynda Lane,() spokeswoman for the development company at its Newport Beach headquarters. The loan came due on Sept. 8, but there had been a default before that, prompting the insurer to begin foreclosure proceedings on the property, Lane said.
Lenders have generally been reluctant to refinance office buildings to repay construction loans that were made several years ago, usually because the value of the buildings has fallen a great deal.
“There was a default on paying the interest,” Lane said. “The cash flow from the building was not sufficient to pay debt service on the loan.”
The foreclosure is expected to be completed by Oct. 18, when the building is scheduled for auction. The East Tower is 90% occupied, Koll Co. said, and includes such tenants as Stewart Title of California.
Gary Wescombe, a partner with consulting and accounting firm Kenneth Leventhal in Newport Beach, said the foreclosure is more bad news for Orange County’s commercial real estate. “It may mean we still have further to go before we have some correction in this market,” he said.
The focus of much attention in the past year, the other twin building, the West Tower, was built by Koll in a joint venture with Columbia, which was taken over by federal regulators in March, 1991. That left Koll as a partner with the Resolution Trust Corp., the agency formed to liquidate failed thrifts. Wells Fargo Bank foreclosed on the West Tower after Koll was unable to restructure a $51-million construction loan. It is 92% occupied, Koll Co. said, and includes Texas Instruments as a primary tenant.
Wells Fargo spokeswoman Kathy Shilkret said the bank could not comment on the building’s status. Several people familiar with the West Tower, however, said Tuesday that the bank has an agreement with a buyer who offered close to Wells Fargo’s $37-million asking price. John Shumway,() president of Market Profiles, a Costa Mesa real estate consulting firm, said he heard that, after receiving about 26 bids, Wells Fargo agreed recently to sell the West Tower for about $37 million, though he would not speculate about who the buyer might be.
George Economos,) an office properties broker at Grubb & Ellis in Newport Beach, said the local real estate community was amazed at how much interest there has been in the West Tower property.
“I think the fact that they got about 26 bids shows that there are buyers all over the country who are interested in Orange County properties,” Economos said.
He predicted that the auction of the other tower will draw strong interest from many of the same investors.