By:  Benyamin Davidsons

The posh office building at 245-249 W. 17th Street in Chelsea was downgraded by Moody’s, following longstanding tenant troubles.

The building owner, Columbia Property Trust, is the New York headquarters for X, formerly known as Twitter.  As reported by Crain’s NY, the social media giant hasn’t paid for the Chelsea office space rent since Elon Musk bought out the company last October.

The building, which spans 281,000-square feet, boasts historic architecture and modern, high-style buildout and is LEED-gold certified.  Built in 1909, the building underwent a full renovation in 2014, as per Columbia’s website. Following the building’s revamp, tech companies flocked in, leaving the building with big name tenants including Netflix and Lyft. That was about when it’s biggest tenant, Twitter, moved in taking on 76% of the building’s total square footage.  Other tenants also included high-end modern furniture chain Room & Board, WeWork and First Republic Bank.

At X, skipping on the rent payments seems to be a cost cutting tactic which Musk implemented when he took over in 2022, in a bid to pay off the $12.5 billion of debt the company took on.  Per Crain’s, since X stopped paying rent at the building it has sublet only about a quarter of its space there.

Midtown South’s commercial real estate woes have had an unfortunate effect on Columbia.  Besides for X, it also has other troublesome tenants, namely WeWork and First Republic Bank.  The office sharing giant is having trouble and announced in August that it is trying to restructure its leases with most of its landlords for the many buildings it occupies.  The bank First Republic was seized by the government in May, and was then purchased by JP Morgan. The bank location at the Chelsea building has since been closed.  Back in February, Columbia had defaulted on $1.7 billion worth of loans.

Following all of this news, last week, Moody’s downgraded the security that holds the building’s mortgage. The mortgage for the Chelsea building was packaged into a security which has a mix of office loans in New York, San Francisco, Boston and Jersey City.  Last week, Moody’s dropped the estimated net cash flow produced by the properties by 16 percent.  Per Crain’s, it downgraded one portion of the mortgage-backed security two levels down to the equivalent of B, and another part to the equivalent of CCC– both of which are junk ratings.

Columbia, which owns and operates notable office buildings in New York, San Francisco, Washington, D.C., and Boston, had purchased the Chelsea building at 245-249W 17th St. and another nearby office building about the same size for $514 million.   “Our acquisition of these prime Midtown South buildings allows us to expand within New York, where we already held the largest concentration in our portfolio, and will further establish Columbia as a significant player in Manhattan’s most dynamic office district,” Columbia CEO Nelson Mills had said then.  Columbia, based in the Flatiron District, was itself acquired two years ago by asset manager Pimco, who paid $3.9 billion for the real estate company, which owns or manages about 8 million square feet of office space.