Denver Office Tower's Value Drops 76%, Leaving Bond Investors in the Red.

A $277 million commercial-property bond tied to the Wells Fargo Center in Denver has been hit with steep losses after the building's value was reassessed at $115 million, a 76% drop from its 2019 value. The once-AAA portion of the bond is now underwater, and buyers of lower-ranking debt are likely to be wiped out if the building is sold. The bonds' servicer has reduced interest payments to holders of the top-rated slice of the security for the first time.

Investors who purchased the safest portion of a $277 million commercial-property bond tied to the Wells Fargo Center in downtown Denver are facing significant losses. The building's value was recently reappraised at $115 million, a 76% drop from its 2019 value [1]. This reassessment has left the once-AAA portion of the bond underwater, while buyers of lower-ranking debt are likely to be wiped out if the building is sold [1].

The CMBS (Commercial Mortgage-Backed Security) is backed by the mortgage on the 52-story Wells Fargo Center. The building, located at 1700 Lincoln St., was purchased in 2012 by Beacon Capital Partners for almost $400 million. The mortgage was refinanced in 2019 and packaged into a type of CMBS known as a SASB, which are typically backed by just one mortgage tied to one building [1].

The Wells Fargo Center, known as the "cash register building" for its curved top, consists of more than 1 million square feet of office space. However, the Denver office market has suffered major headwinds in recent years as tenants continue to downsize their space post-pandemic. More than 27% of Denver’s metro office market was vacant in the second quarter, according to brokerage CBRE Group Inc., and leasing activity fell 31% from last year [1].

The building is currently about 65% leased, with tenants such as WeWork Inc. having given back several floors in recent years. CBRE expects the market to stabilize moving forward as offices get converted to other uses or demolished [1].

The $123 million slice of debt that was once rated Aaa by Moody’s Ratings has been cut 11 levels to Ba2, two steps below investment grade. It’s currently quoted at around 82 cents on the dollar, according to Bloomberg pricing [1]. The $28 million slice of class B notes, originally rated Aa3, are quoted at around 54 cents, while the $28 million of class D notes initially rated Baa3 are quoted at around 8 cents [1].

Last month, interest payouts were partially cut off to holders of the top-rated debt for the first time, another sign of distress, while investors collectively are owed almost $4.9 million in back payments, bond documents show [1].

The building's appraisal reduction amount (ARA), a calculation to determine the extent to which a CMBS’ outstanding balance exceeds the property’s value following a new assessment, implies losses on the once-AAA bonds stand at roughly $22 million, or 18%, while holders of lower-ranking notes face a total loss [1].

“Denver’s business district is now about one-third vacant, with energy and banking tenants moving to other desirable areas of the city,” said Michael McLarney, a managing partner at Mica Creek Capital, which invests in commercial real estate debt. “That’s left many aging high rises behind, hitting CMBS bondholders behind them” [1].

References:
[1] https://financialpost.com/pmn/business-pmn/collapse-in-value-of-denver-office-tower-to-hit-bond-investors
[2] https://www.bloomberg.com/news/articles/2025-08-06/aaa-bonds-are-underwater-in-cmbs-tied-to-denver-office-tower