FULL CIRCLE: The former home to SunTrust Bank’s corporate offices, Downtown’s One Commerce Square is approaching foreclosure – again. -- PHOTO BY ERIC SMITH

The foreclosure notice filed Friday against One Commerce Square at 40 S. Main St. isn’t the first financial crisis the landmark tower has faced.

Not only did the 31-story skyscraper go into foreclosure in the 1990s, but its very construction was mired in economic turmoil as the original building owner, National Bank of Commerce, struggled to get the project capitalized as it was built during 1968-72.

In his book, “National Bank of Commerce: The First 120 Years,” author Dr. Charles Crawford wrote, “… The tower ultimately cost the bank considerably more than expected.” Crawford added: “The wisdom of the decision to construct the new tower is debatable. From a purely financial perspective, it may well have been a mistake.”

Sources in the book call it a “white elephant,” while others laud it as a “signature building” that would help NBC compete with Memphis’ other local, large banks, First National (later changed to First Tennessee) and Union Planters (which later became Regions).

That kind of roller coaster ride is a part of life for any large, tenant-driven building, noted Kevin Adams, CEO of CB Richard Ellis, the firm that handles leasing and management of One Commerce Square.

Adams, who began his real estate career by developing the Morgan Keegan Tower in the 1980s, recalled prominent Downtown buildings that have undergone foreclosure over the years, including the Morgan Keegan Tower, the First Tennessee Bank building, the Falls Building and Brinkley Plaza, all of which are now stable.

So when One Commerce Square lost the 155,000-square-foot lease of SunTrust Banks Inc. in December, the situation was bound to sour quickly.

“Things like this happen when you have a very large building and you have a move-out of a large tenant and you can’t replace it,” Adams said. “Things have to get balanced back out.”

Circle of life

Getting balanced back out might take some time. Building owner One Commerce Square LLC – whose majority partner is Jacksonville, Fla.-based Southcoast Capital Group – defaulted on a $24.5 million loan dated Dec. 20, 2002, through Archon Financial LP. The deed is now owned by Chicago-based Park National Bank following a merger.

Park National Bank last week appointed Douglas M. Alrutz and Richard C. Raines of Wyatt, Tarrant & Combs LLP as successor trustees in the matter, and the building will be sold to the highest bidder on the Shelby County Courthouse steps.

If the trustee’s sale – set for May 27 at noon – doesn’t yield an outside, qualified bidder, Park National will buy the building back.

Adams said officials at Park National told him it was the bank’s intent to “keep ownership of the building and to continue to maintain the building and its services as they have been and reinvest in the building to re-tenant it over a period of time.”

Calls to Park National were not returned.

Joe Steffner, president of the Memphis office of Grubb & Ellis Co., acknowledged the impact that a foreclosure can have on a skyline building, adding that the circumstances are different this time without NBC or SunTrust taking up half the space and mitigating the loss.

“It’s definitely a blow to Downtown Memphis for a historical landmark like that to go into foreclosure,” Steffner said. “However, it’s not something that that building hasn’t gone through before. It was foreclosed on in the mid-90s and recovered well. The difference this time is the bank’s not there.”

On the rebound

SunTrust’s absence from One Commerce Square was already felt as most workers had long left the building following the bank’s acquisition of National Commerce Financial Corp., the parent of NBC Bank.

Also, a potential purchase from a California investor fell through. So with a large lease expiring, no tenant to replace it, and no buyer at hand, the building “was going to be underwater on its debt service,” Adams said.

CBRE has been working to replace SunTrust with a large user, which has included overtures from Pinnacle Airlines Corp., but the current financial climate has made that task a challenge.

“None of those things have come to fruition with everything going on in the economy,” Adams said. “The inevitable had to happen, which was the rents in the building were not able to cover the debt service any longer.”

One Commerce Square’s foreclosure sent shockwaves throughout Memphis, especially Downtown, where the office market has struggled. Downtown office space opened 2009 with a vacancy rate of 19.7 percent, according to the first-quarter data compiled by CBRE, placing it third among the weakest submarkets in Shelby County behind only the airport area (56.1 percent vacancy) and Midtown (20.8 percent).

Jeff Sanford, president of the Center City Commission, noted that the building’s woes were the result of a series of occurrences.

“Unfortunately, One Commerce Square is a poster child for the overall soft Memphis office market, the effects of the bank mergers and acquisitions and a severely depressed economy,” Sanford said.

Sanford said the CCC will soon roll out a strategy to increase Downtown office occupancy. Though he wasn’t ready to discuss details, Sanford did say it won’t be a billboard and television commercial campaign, but rather a “plan to bolster Downtown office that will be a real roll-up-the-sleeves, get-down-to-business kind of an effort.”

“The One Commerce Square foreclosure notwithstanding, we have been at work behind the curtain and are continuing to be at work on some plans to promote Downtown office space in a very real way,” Sanford said. “One Commerce Square is still a Class A office building, and though it has encountered a serious problem, I believe it will return to its rightful place among the best properties in Memphis in the future.”