To the amusement of nearly everyone except its owner, Atlanta’s Bank of America® Plaza might be foreclosed on soon. While amusing, it isn’t quite as ironic as observers would like it to be — it’s owned by BentleyForbes, not BofA, which is just the anchor tenant — and it might be a preview of the commercial real estate collapse that analysts have been promising for years.

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Bank of America® Plaza, the tallest building in Atlanta, was purchased by a California real estate investment firm called BentleyForbes (which sounds like it was named by someone throwing darts at an old issue of the Robb Report) in October of 2006 for $436 million, which accounted for slightly less than half of their $1.1 billion in acquisitions during that year, right before real estate prices started to stagnate in 2007. 2006, it turns out, was the single worst year to be running around buying real estate.

The Atlanta Journal-Constitution reports that while BentleyForbes has been working with its servicer to avoid default on the larger $363 million loan on the tower, while the other smaller loan used to finance the purchase is already in default. The building could be foreclosed on, presumably, if BentleyForbes doesn’t do something to raise capital. With lowered demand for office space — especially office space with rents priced to pay down 2006-vintage financing — that might not be easy. The Wall Street Journal reports that the tower is 37% vacant, and that anchor tenant and namesake, Bank of America®, even cut its square footage by 64%.

Commercial real estate purchased around this time is ripe for a massive market correction. The AJC points out that if the tower is foreclosed on, and sold at discount, the new owners will be able to offer cheaper rents and raise occupancy. This will no doubt be a painful process, especially considering the secondary market activity relating to the financing on these massive purchases.

The AJC also reports that commercial mortgage backed securities reached high delinquency rates in Atlanta recently. Recall that RMBS — residential mortgage backed securities — delinquency helped lead to the financial collapse in 2008, especially because these were often chopped up and bundled into collateralized debt obligations, which intentionally masked the risks inherent to subprime lending, leading to a sort of domino effect.

Subprime is obviously not so prevalent a problem in the commercial real estate market, but the sheer size of individual defaults is astonishing — $436 million, in this case. Analysts have been warning of an impending commercial real estate collapse for years now. Wouldn’t it be tragic if a tower bearing Bank of America®’s name was the first signal of this?

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