Pacific Investment Management Co. (Pimco) is facing significant losses on a commercial mortgage-backed security tied to the Centre Square office complex in downtown Philadelphia. The two-tower high-rise, located at 1500 Market St., was appraised at $471 million in 2019 but recently sold for just $70 million after an 85% writedown. Pimco holds roughly $58 million in face value across the deal, with losses expected to exceed $35 million.

The complex, once 93% leased, saw occupancy drop to 28% by mid-2023 due to the pandemic and remote work trends. The sale to PMC Property Group and developer Dean Adler plans to convert part of the property into a luxury hotel and apartments. This marks only the third time since the financial crisis that top-rated CMBS tranches have suffered losses, following similar setbacks at Palisades Center mall and 1740 Broadway in Manhattan.

Analysts warn more pain is likely for office real estate in cities like Chicago, Los Angeles, and Denver as refinancing pressures mount.