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Weekly Market Report - July 29, 2022

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Sapir faces ticking clock to refinance Madison Avenue office loan


Sapir failed to pay off a $231 million CMBS loan for its high-rises at 260 and 261 Madison Avenue before its mid-June maturity date. Sapir entered into a forbearance agreement with the loan’s servicer, allowing an additional 60 days to pay off the debt. The firm, led by Alex Sapir, put the two Midtown properties on the market earlier this year, hoping to get around $600 million for them as it shifts its investment strategy to Florida. Now, Sapir will have about a month to find a buyer or a lender that’s willing to refinance its CMBS loan.


Sitting opposite one another on Madison Avenue between East 38th and 39th streets, the two buildings were 81 percent leased as of March, down from 92 percent in December 2020. Rising interest rates have made borrowing more expensive, but landlords have still been able to score refinancings on maturing loans. Sapir may have held off on refinancing the properties in recent months as it searched for a buyer. The buildings also have a role in a tangle of lawsuits between Alex Sapir and his ex-brother-in-law and former business partner Rotem Rosen. Rosen claims Sapir was supposed to buy out his interests in a partnership between the investors for $75 million. Of that, $15 million was to be paid upfront while the rest would be paid over 15 years.


Sapir’s debt to Rosen was guaranteed by 260 and 261 Madison Avenue, and Rosen alleges that Sapir breached the agreement by refinancing a line of credit on the property, triggering a clause that made the $60 million debt payable immediately. Sapir is also suing former tenant WeWork for ditching its lease at the property last year, alleging that WeWork owes $17 million in damages. WeWork, meanwhile, argued that the Sapir Organization was struggling financially and “resorted to questionable practices in order to extort WeWork” and its founder Adam Neumann. Sapir bought the Madison Avenue properties in 1997.


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SL Green Prioritizing Reducing Debt Amid Leasing Challenges


SL Green Realty Corp. is shifting its strategy to prioritize debt repayments as New York City’s largest office landlord grapples with lower leasing activity in a rising interest rate environment. Matthew DiLiberto, SL Green’s chief financial officer, said during the real estate investment trust’s (REIT) second quarter earnings call that it is planning to repay a $300 million bond maturity in September likely with proceeds from asset sales. The REIT is then looking to refinance a separate $500 million bond maturity with a “short duration bank or bond financing” that enables it to repay the principal amount after it expects to receive nearly $600 million in November 2023 from proceeds at its One Madison Avenue project.


DiLiberto said SL Green for the first time in recent memory did not originate any new debt, preferred equity investments or repurchase any shares. The firm has also paused its $3.5 billion stock buyback program. SL Green unloaded a number of properties in late 2021 including 707 11th Avenue, 1080 Amsterdam Avenue, 110 East 42nd Street, 590 Fifth Avenue, a 49 percent stake in the Daily News Building at 220 East 42nd Street and a 25 percent stake in One Madison Avenue. Jonathan Morris, founder of the REIT Academy and a former executive at three REITs, said bringing in joint venture equity partners such as what SL Green did with 450 Park Avenue, where it now owns only 25.1 percent of the asset, is an emerging trend for large office landlords such as Boston Properties.


Leasing activity slowed in the second quarter with SL Green’s portfolio now roughly 92 percent occupied with 1.1 million square feet of office leases signed year-to-date, about 1 percent below its projections. DiLiberto said reaching the REIT’s year-end lease-up aim of 94.3 percent will be “very challenging goal to say the least,” but noted that there is a “substantial pipeline” of another 1.1 million square feet of leases and transactions lined up.


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NYC developers eyeing casinos for Hudson Yards, Times Square, Willets Point, Coney Island


New York City developers and gaming operators are putting their chips on the table in a frenzied bid for the right to open local casinos, including in Times Square and Hudson Yards. Some of the other sites being eyed are Willets Point near the Mets' Citi Field ballpark in Queens and Brooklyn’s Coney Island, according to sources familiar with the plans. The state Gaming Commission is authorized to issue up to three licenses in the Big Apple downstate region, and Mayor Eric Adams has said he wants at least two of the licenses given to the city. Real-estate giants Related Companies in Hudson Yards and Vornado and SL Green in Times Square are interested in forming partnerships with casino behemoths such as Hard Rock, Sands and Wynn for local venues. Sources familiar with the discussions said Hudson Yards has ample space to build a casino, along with the transportation infrastructure needed to get people to and from a gaming facility.


Mets owner Steve Cohen and his associates — who have good relations with Adams — have spoken to City Hall about potentially building a local casino. On the casino side, Hard Rock has indicated it has already joined the party. It just donated $119,000 to the Gov. Hochul-controlled the state Democratic Party and has contributed more than six figures to the governor’s election campaign. Hard Rock’s lobbyists also have met with City Hall Chief of Staff Frank Carone about wanting to build a casino, lobbying records show. Hard Rock executives have discussed a partnership with the Mets’ Cohen for a Willets’ Point casino. A selling point: Willet’s Point is easily accessible using the No. 7 subway train, the Long Island Rail Road and the Grand Central Parkway and Long Island Expressway and has a large population just minutes away in Flushing, a potential gambling constituency.


Two existing slots parlors at state horse-race tracks — Resorts World/Genting at Aqueduct in Queens and the Empire City/MGM at Yonkers in Westchester County — have been in business for more than a decade and will apply for a full license to expand and offer live table games. Unless the proposed casino is on state-owned property, it also would have to be approved according to the city’s lengthy land-use review procedure that needs the blessing of the City Council.


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Polish Mission to the UN, Accountant Grassi & Co. Ink Deals at 750 Third Ave


The Polish mission to the United Nations and an accounting firm have signed new leases at 750 Third Avenue in Midtown East, landlord SL Green Realty Corp. announced this week. The Permanent Mission of the Republic of Poland to the United Nations inked an early renewal for its 17,890 square feet on the 30th floor of the building between East 46th and East 47th streets. Asking rent for the 10-year lease was $76 a square foot, according to the landlord. And accounting firm Grassi & Co. leased 11,779 square feet for five years in the building. Asking rent for the space was $74 a square foot. The company currently has an office at 488 Madison Avenue, near Rockefeller Center, but it’s not clear whether it plans to relocate or just establish another office in Midtown.


Ronald Shakerdge of Republic Realty Services represented the Polish mission in the negotiations, and Michael Burgio of Cushman & Wakefield negotiated the transaction for Grassi & Co. Neither Shakerdge nor C&W spokespeople immediately responded to requests for comment. SL Green handled both transactions in-house. During their earnings call this week, SL Green execs tried to downplay a slow quarter of office leasing for the city’s biggest office landlord. It signed 39 leases totalling 188,000 square feet in the second quarter, a significant decline from 37 leases spanning 820,989 square feet in the first quarter of 2022.


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Schrager, Witkoff default on Public Hotel mortgage


Steve Witkoff and hotelier Ian Schrager have run out the clock on their mortgage at the hip Public Hotel on the Lower East Side, and now it’s costing them. The developers defaulted on their $189 million mortgage backing the 367-room hotel at 215 Chrystie Street after blowing past its maturity date, and are now paying a 9 percent penalty interest rate. Their lender, Deutsche Bank, is looking to sell the non-performing loan, according to marketing materials from Eastdil Secured, which is handling the note sale. An investor could buy the debt to take control of the property through foreclosure or look to negotiate with the borrowers to get repaid.


The partners developed the 26-story building, which also includes 11 condominium units, in 2017, promising to bring affordable luxury accommodations to the trendy neighborhood. The hotel was forced to shut its doors at the onset of the pandemic in March 2020, which Schrager called “an agonizing decision” and “one of the hardest things I have had to do in my entire career.” The Public reopened last summer with a bash attended by celebrities including Zoë Kravitz and Julia Fox, the New York Post reported, but its troubles weren’t over. The property became embroiled in a lawsuit brought by EB-5 investors who claim Schrager and Witkoff loaded the property up with debt and siphoned off more than $100 million for themselves.