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Brooklyn multifamily developments trade hands, score financing
In October, lenders pumped significant funds into two Midtown office buildings, indicating a revival in the Manhattan market. Tishman Speyer secured a $3.5 billion refinancing deal at Rockefeller Center, the largest commercial mortgage-backed securities transaction ever for a single office asset. Alexander's secured a $400 million refinancing deal at the Third Avenue building where Bloomberg renewed its lease. Related Companies secured a refinancing for part of the Gateway Center mall in East New York. Goldman Sachs provided a $250 million loan to the Archdiocese of New York for three Midtown East properties. MF1 Capital provided a $170 million loan for Cheskel Schwimmer's Brooklyn multifamily project. KKR provided a $145 million loan to buy a Downtown Brooklyn rental tower. State Street Bank provided a $131.5 million loan for Atlas Capital Group's purchase of 80 Dekalb Avenue.
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A lender is seeking to seize 17 State St., a 42-story office tower in Battery Park City, from its longtime owner, RFR. The real estate investor failed to pay off the $180M mortgage tied to the building when it matured in August, and this week the special servicer on the debt moved to foreclose on the 571K SF building. RFR purchased the building for $188M in 1999 and took out the mortgage in 2014 with JPMorgan Chase. Rialto Capital Advisors was appointed to oversee the workout as special servicer. In its foreclosure suit filed on behalf of the CMBS investors, Rialto claimed RFR now owes $183.5M, including default interest and other charges. It also said RFR failed to deposit all of the rents and revenue from the property into a cash management account as it had agreed to in the original mortgage.
Rialto is asking a judge to appoint a receiver to oversee the property, allow it to audit its owner's books, and force a sale of the building. It also seeks to hold RFR co-founders Michael Fuchs and Aby Rosen "personally liable for the full amount of any rents and revenues that have been misappropriated." Rialto is asking a judge to appoint a receiver to oversee the property, allow it to audit its owner's books, and force a sale of the building. The company intends to maintain ownership of the building, which is 94% leased, according to CoStar data reported by Crain's New York Business.
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Lenders have agreed to extend the $1.25 billion mortgage of 1 Madison Ave., a 1.4 million square-foot building at East 23rd Street, which has attracted tenants such as IBM, Franklin Templeton, and Coinbase. The building is currently 66.6% leased, which is 10 percentage points below SL Green's goal for this year. The extension, granted by Wells Fargo, means 1 Madison's mortgage is due in 2027, with an interest rate of about 7.7%. It is expected that the company will likely miss its 75% leased target, and the stabilization period will take two years. Construction work at 1 Madison ended in June, and SL Green is off to an encouraging start lining up tenants.
SL Green spent $2.3 billion renovating and expanding 1 Madison, which includes a new glass tower, floor-to-ceiling windows, and virtually column-free offices. Amenities at 1 Madison include a steakhouse run by Daniel Boulud and a branch of the Chelsea Piers fitness center. Currently, 1 Madison is considered one of the best buildings in a challenged neighborhood, with occupancy rates rising to 26% in Midtown South from 22% a year ago. SL Green secured a three-year extension for 1515 Broadway's $740 million mortgage, which the developer hopes to convert into a casino.
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Manhattan's office buildings are being repurposed as tenants take advantage of vacancy-prompted rent reductions. Developers like AmTrust Realty Corp are investing in Class B sites to keep them commercial. Last month, AmTrust acquired 360 Lexington Ave., a 1950s structure in Midtown Manhattan, for $66 million. The building, which was acquired for less than half of its former owner's $180 million, has been deemed an incredible opportunity at the price. The company plans to invest in a new facade, conference centers, and other amenities inside the building.
The office market is still emptier than pre-pandemic, but the recent surge in tenant demand suggests interest in such buildings may not be as outlier in the future. The office addresses in New York City, including 101 Park Ave., 348 Lexington Ave., and 345 Lexington Ave., have experienced notable vacancies due to hedge fund Tiger Management and Morgan Stanley exiting spaces. However, recent deals have erased some of the deficit, and the tower is now 92% leased. The tower has served as a location for dozens of TV shows, music videos, and movies, and has been refinanced with a $365 million note from Bank of America.
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The Helmsley Building, a Midtown landmark, is facing foreclosure proceedings as lenders, including Morgan Stanley, file a lawsuit against it. The building, which is 70% leased and in default on its $670 million mortgage, is part of the process. The foreclosure came after speaking at a New York University real estate conference that discussed the difficulties faced by older office buildings. Developers like Marty Burger, Maryanne Gilmartin, and Bill Rudin discussed the difficulties faced by older office buildings. Rudin is developing a new asset, partnering with Vornado Realty Trust to construct a new building at 350 Park Ave. with Citadel as an anchor tenant. Rechler, who owns 26 million square feet of space, also wants to build a new tower at 175 Park Ave. He hopes to break ground next year but hasn't signed up an anchor tenant.
Most developers have struggling office buildings in their portfolio, including Rudin, who owns 32 Sixth Ave., a nearly 40% vacant tower. Conversion to residential seems likely but won't come cheap, and lenders might prefer another developer handle the project. One possibility is SL Green, which is converting 750 Third Ave. and is special servicer for the Helmsley. Rechler noted that the economics at certain properties aren't working anymore, and any solution can't be just kicked the can down the road.
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Partners plan to invest in projects across the country
Dune Real Estate Partners and Tom Elghanayan's TF Cornerstone have formed a $1 billion investment venture, Alta Residential, to advance office-to-residential conversions across the US. The venture will source and analyze conversion opportunities on behalf of Alta Residential, providing construction oversight for local developments, including in New York City. Alta will also team with TF Cornerstone on certain conversions in the Big Apple. TFC has completed 15 commercial-to-resi conversions spanning 5 million square feet, including a 318-unit development at 95 Horatio Street in Manhattan's Meatpacking District. The venture plans to invest in about 20 projects in the next three years.
Alta Residential is already receiving significant investor interest, with CEO Dan Neidich stating that the venture is already receiving "significant" investor interest. Conversions have already increased from last year's total, with 73 completed so far in 2024. There are 309 projects in the pipeline, most of which are office-to-residential conversions, accounting for 38,000 units in all.
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Performing loans sold at 1% discount to par value
Valley National Bank, a New Jersey-based financial institution, has reduced its exposure to the real estate sector by selling nearly $1 billion worth of property loans to Brookfield Asset Management. The bank received a 1% discount on the acquisition and has a contractual balance of $925 million. All but about $100 million has been identified and transferred to be held for sale by the end of the third quarter. Valley Bank will continue customer-facing servicing duties on the loans.
CEO Iran Robbins said the bank had been monitoring loan-sale opportunities throughout the year and expects to recognize an "incremental" net loss on part of the debt and transaction costs in the fourth quarter. Valley Bank, a regional bank with over $62 billion in assets, emerged as a critical lending lifeline in New York City, working with both midsized landlords and institutional players. As of December 2022, its commercial real estate loan-to-capital ratio was 439.7 percent, well above the 300 percent threshold regulators recommend.
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Lender extended maturity, tweaked interest rates on $235M loan
Edward J. Minskoff Equities secured a loan modification on 1166 Sixth Avenue, a Midtown office tower, as lender Wells Fargo extended maturity dates and adjusted interest rates on three loans totaling $235 million. Wells Fargo knocked $10 million off the balance of the smallest mortgage, a $11.5 million project loan made in 2019. The modifications may prove to be a lifeline for EJME, which had been in special servicing due to the building's securitized debt. The servicer flagged the loan for imminent maturity default, with revenue covering just 1.3 times the amount needed to cover monthly mortgage payments.
EJME jumped head first into negotiations and submitted a workout proposal just a few months later. It is unclear how Wells Fargo altered interest rates or maturity dates on the loan. The workout allows EJME more time to find tenants for 1166 Sixth, and Minskoff's firm is marketing the building's seven empty floors as a possible two-story atrium and gallery that would open onto a small park.
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Adi Chugh’s firm continues to write big construction loans
Adi Chugh's TYKO Capital has provided a $280 million acquisition and construction loan for Vanbarton Group's residential conversion of the Financial District office tower at 77 Water Street. Vanbarton, led by Richard Coles and Gary Tischler, closed on a $95.5 million purchase of the 26-story building from Sage Realty, the management arm of the William Kaufman Organization. The company is one of the most active developers converting outdated offices into rental buildings, with the potential to yield up to 600 apartments. Conversions have become a significant topic of conversation, with Dune Real Estate Partners and TF Cornerstone announcing a $1 billion fund to advance conversions. Chugh has become real estate's most important construction financier since launching TYKO last year in partnership with Elliott Management.
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Clothing retailer taking 10K sf in FiDi for third Manhattan location
Brooks Brothers has signed a 10,000-square-foot lease with L&L Holding Company for a flagship store in Lower Manhattan's Financial District. The 10-year lease covers a portion of the ground floor and the cellar. Brooks Brothers, which started in 1818, has two other locations in the borough. The store is expected to open in the spring. L&L revamped the lobby in 2017 as part of a redevelopment of the property, including a 50,000-square-foot portion of the lobby open to the public. Other retail tenants attached to the property include Anthropologie and Nobu Downtown. The 29-story, 1.1-million-square-foot office property features an office tenant roster including Gucci, Orchestra, and Payoneer. In the third quarter, only 14.7% of prime retail space was available, a record low for the borough. Brooks Brothers was purchased by Simon Property Group and Authentic Brands Group for $325 million in 2020.
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Cheras and Chehabars team up for big retail redevelopment
Al Laboz, a prominent investor, has acquired a 440,000-square-foot Macy's space in Downtown Brooklyn. The deal, led by United American Land and his partners Isaac Chera and the Chehabar family of the Jackson Group, aims to redevelop the historic property into world-class retail spaces and location-based entertainment. The deal is expected to confirm Macy's plans to close the Fulton Street location, which was rumored to be on the chopping block for over a decade. Instead of closing, Macy's downsized and upgraded the property, selling the upper floors for $270 million to Tishman Speyer in 2015, which constructed 622,000 square feet of office space across 10 floors above.
Tishman agreed to contribute $100 million toward the renovation of Macy's remaining four floors. The Wheeler, Tishman's portion of the property, signed a lease in 2021 with St. Francis College as its sole tenant. Retail has been making a comeback after being shunned by investors for a long period. Blackstone recently struck a deal to buy a portfolio of retail buildings in Soho for $200 million, the biggest investor-led retail purchase in Manhattan since 2021. Laboz has been an active investor in retail space across the city and Downtown Brooklyn for three decades.
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