A prior appraisal and a senior bond rating both get sold as floors under value. Centre Square shows what happens when neither one holds. The two towers at 1500 Market Street in Philadelphia, about 1.8 million square feet across a 43-story and a 36-story building, are selling for $70 million under a sale a federal judge approved in August. Bloomberg reported on September 25, with The Real Deal and CRE Daily following, that the property was appraised at $471 million in 2019. That is a decline of roughly 85 percent, deep enough to push losses through most of the bond structure, including the class once rated AAA (the top credit grade).
The loan sits in a $368 million single-asset, single-borrower CMBS deal, or SASB. Unlike a diversified pool, a SASB deal rises or falls with one property, so when income collapses and no refinancing arrives, the bondholders' recovery comes down to sale proceeds minus advances, fees, and other claims.
What the $70 million sale clears
A joint venture of Nightingale Properties and InterVest Capital Partners bought Centre Square for $328 million in 2017. The owners refinanced with a JPMorgan loan in December 2019 that was securitized in early 2020, weeks before the pandemic hit office demand. At securitization the complex was about 93 percent leased to 56 tenants, according to KBRA as cited by Bloomberg. By the end of June 2026, servicer commentary put it at just 28 percent leased. By mid-2022 the loan had moved to special servicing (the workout desk that takes over a CMBS loan in trouble), after the borrower said it could not refinance or pay off the loan at maturity. The owners did not get a modification or extension, and the lender foreclosed.
Strategists cited by Bloomberg expect a recovery of around 44 cents on the dollar after advances, fees, and other claims. Seven lower-ranking bond classes, or tranches (slices of the deal ordered by who gets paid first), are expected to be wiped out, and losses are expected to reach the class once rated AAA. That would be just the third loss on an AAA CMBS class since the financial crisis, after the Palisades Center mall and 1740 Broadway in Manhattan. All three were SASB deals. Pimco is reported to be the largest holder, with about $58 million of face value across the deal, roughly half of it in the top-rated portion, and Bloomberg puts its expected loss at more than $35 million. The buyers plan a roughly 300-room luxury hotel and up to about 500 apartments while keeping some office. That is a reuse plan, not a vindication of the 2019 appraisal.
AAA was a rating, not a recovery floor
A rating assigned when bonds are issued is not the same as cash available when the building sells. AAA meant the class sat at the top of the payment order when the deal was structured. It did not mean the property's value could never fall far enough to reach it. At Centre Square, an 85 percent drop from the 2019 appraisal leaves too little in sale proceeds, after costs, to keep even the senior class whole.
Sellers sometimes treat senior or AAA language the way they treat an old appraisal: as proof the downside is capped. For your investment committee, or IC, translate it. Ask what in-place net operating income, or NOI (income after operating expenses, before debt service) supports today, what a realistic refinancing or sale clears, and how much of the debt that path actually covers. A rating is an opinion about priority inside a structure. A recovery is arithmetic after the building trades. SASB deals make that arithmetic harsher because there is no pool of other loans to absorb the miss, and Bloomberg notes that more than 30 top-rated slices of SASB deals already trade below 85 cents on the dollar.
Leasing and takeout fail before the bonds do
The order of events matters. The towers went from about 93 percent leased at securitization to 28 percent this June. Special servicing began around mid-2022, when refinancing and payoff at maturity were off the table, and the $70 million sale came years later. The bonds did not fail first. The income and the exit failed first, and the bonds recorded the result.
That order applies to the next offering memorandum, or OM (the broker's marketing package for a sale) in your inbox, whether the property is office, multifamily, industrial, or retail. If the seller leans on a prior appraisal, a prior purchase price, or language about protected senior debt, rebuild from the T-12 (the trailing twelve months of a property's actual income and expenses) and the rent roll. Check whether current leasing and in-place rents can carry today's debt costs, and whether a refinancing or sale at a believable exit cap rate (the rate the next buyer will use to value the property when you sell) clears the debt.
Rebuild from income, not the old appraisal
When a file leans on a prior valuation or a bond rating to support its pricing, put three columns on one page: what the old appraisal or rating claimed, what in-place income and leasing say now, and what a realistic sale or refinancing recovers after costs. Centre Square makes the gap plain: $471 million in 2019, $70 million at sale, seven junior classes expected to be wiped out, and the AAA class not spared.
AcquiOS helps without pretending to know how the next credit story ends. It moves the OM, T-12, rent roll, and supporting exhibits into your team's existing Excel template with source citations, so analysts spend their time testing income, vacancy, and the exit instead of retyping pages. AcquiScore can mark Proceed, Caution, or Pass against your written buy box (the screens that decide which deals you pursue) once the file is built. It does not tell you whether a 2019 appraisal is still a floor. That judgment stays with your IC.
What to do this week
Take one OM that cites a prior appraisal, a senior debt rating, or protected-debt language as support for its pricing. Add a one-page check with three parts: what the old valuation or rating claimed, what the T-12 and rent roll say about in-place income and leasing, and what a realistic sale or refinancing recovers after costs. Then rebuild without treating the old number or the letter grade as proof of recovery.
If the thesis only works when you borrow a 2019 appraisal as a floor, say so in the memo and size the bid accordingly.
Frequently Asked Questions
Does an AAA CMBS rating mean senior bondholders cannot take losses?
No. AAA describes priority in the payment order when the bonds were issued. Centre Square's court-approved $70 million sale, against a 2019 appraisal of $471 million, is expected to wipe out seven junior classes of the $368 million deal and reach the class once rated AAA. That is rare, just the third AAA CMBS loss since the financial crisis, but not impossible, especially in single-asset deals.
Why does Centre Square matter if my team buys multifamily, not office?
Because the failure pattern travels across property types. Leasing collapsed, refinancing failed, and the sale reset recovery far below the old appraisal and the original ratings. When a broker sells an old valuation or protected senior debt as a floor on any property, rebuild from in-place income and a realistic exit the same way.
What should my IC ask when a broker cites a prior appraisal?
Ask what NOI and leasing support today, what a believable refinancing or sale clears after costs, and how much of the debt that path covers. Treat the prior appraisal as a historical data point, not a floor, unless the current file proves it.
How does AcquiOS help when a file leans on ratings or old appraisals?
AcquiOS moves the OM, T-12, rent roll, and exhibits into your team's existing Excel template with citations, so your team can test cash flow and the exit without treating a 2019 appraisal or an AAA label as stabilized NOI. It supports judgment. It does not replace it.