Photo courtesy of Newmark
While Rockland Trust saw deposit and net interest margin growth, a $54.6 million office loan was reclassified as non-performing executives said Friday morning, hampering the gains the bank made in the third quarter.
Jumbo Capital and Greenwich, Connecticut-based Sound Mark Partners bought the Stony Brook Office Park in Waltham in January 2018 for $80.1 million, when it was 100 percent leased. The property contained 270,196 square feet of office, lab and R&D space in four interconnected buildings.
The acquisition financing was provided by East Boston Savings Bank, which issued a $59 million mortgage. Independent Bank Corp., Rockland Trust’s parent company acquired East Boston Savings Bank in 2021.
The property is being marketed for sale and is expected to trade for approximately $35 million, according to a research note issued by investment advisory firm Piper Sandler in September. The property added four new tenants in early 2023, Jumbo Capital announced at the time, leasing a combined 50,000 square feet to tech equipment manufacturer Veeco, Alcresta Therapeutics, Cugene and Opinion Dynamics.
Jumbo Capital did not return requests for comment following the research note’s publication.
With the loan moving to non-performing status, Rockland’s non-performing loan total has increased to $104.2 million, 0.73 percent of all loans. CEO Jeffrey Tengel told investors during Friday morning’s third-quarter earnings call that this was a proactive move by the bank after the property was re-appraised following Jumbo’s decision to repurpose some of the Stony Brook Office Park’s lab space back into office space. The property is around 65 percent occupied, bank executives said.
“We have one large commercial real estate office loan that matures in the first quarter of 2025 which is experiencing stress,” Tengel said. “While this loan is current and continues to pay, we proactively moved it to NPA status, given the uncertain outlook and lack of commitment from the sponsor. Recall this loan came over with the East Boston savings acquisition and has been adversely rated since close. The sizable reserve was set up in the third quarter in anticipation of its ultimate resolution, and we’re actively exploring all avenues for resolution prior to maturity.”
Third-quarter research from commercial brokerage CBRE found the Route 128 West life science market is 25.9 percent vacant with another 5.7 percent of its 11.12 million square feet of space available for sublease despite 109,226 square feet of positive absorption so far this year.
Due to the status of the loan, Rockland has created a $22.4 million reserve specifically for the non-performing office loan. Whether it be through foreclosure, a loan sale or some other outcome, a potential resolution for the non-performing loan is still unknown.
“It doesn’t appear that the sponsor has an interest in contributing any capital, which we think is a sign that things aren’t going to end well here, per se, which is why we’ve been exploring all of the above,” Tengel said in response to a stock analyst’s question. “We continue to interact with the sponsor and hopefully they’ll see some value in the property, but we’re prepared to take whatever action we think is necessary.”
On top of the $54.6 million office loan for Stony Brook Office Park, Rockland executive said the bank also holds a $30 million syndicated office loan that matures in the fourth quarter, which the bank downgraded after the unspecified property lost an important tenant.
It is still to be determined if the syndicated loan will get an extension, as requested by the asset’s owner, and Rockland executives described it as a “fluid situation” dependent on a decision by all the banks that participated in the loan. Unlike the office loan, the $30 million syndicated loan doesn’t have a specific reserve against it.
Bank executives also said they extended a roughly $50 million loan on an unspecified, speculatively-built life science facility, out to 2026 after the developer secured enough tenants to bring the building up to roughly 50 percent occupied. Executives called the lease activity and the extension a “positive” development.
Rockland Trust’s net income was $42.9 million in third quarter, down from the second quarter due to the reserve set aside for the Stony Brook loan. The bank’s net interest margin of 3.29 percent was up 4 basis points compared to the second quarter. Average deposits for the third quarter increased by $330 million, or 2.2 percent.
Banker & Tradesman staff writer James Sanna contributed to this report
