SL Green Takes Over Madison Avenue Office Tower From Ashkenazy After Lengthy Battle
SL Green has successfully taken full control at 625 Madison Ave. after it won a foreclosure auction at the property this week.
The Manhattan-based REIT had ground leased the building from Ashkenazy Acquisition Corp., which had fallen behind on loan payments, triggering a UCC foreclosure proceeding. SL Green bought a stake in the mezzanine loan tied to the fee interest, allowing it to execute on the foreclosure and take full control of the 17-story building, The Real Deal reports.
SL Green and other lenders, including UK-based Children’s Investment Fund and Winthrop Realty Trust, held a $195M mezzanine loan provided to Ashkenazy Acquisition Corp., led by Ben Ashkenazy, which paid $400M for the fee interest in the building in 2013, reportedly with the view of hiking the annual ground rent SL Green was paying from $4.5M to closer to $40M.
The rent then reset in 2020, per TRD, but the year before, SL Green acquired a stake in the lending group that owned Ashkenazy's debt. Ashkenazy was meant to pay $40M of the debt by November 2018, but it had only paid off $30M by then, TRD reported. This year, an arbitrator set the ground rent at $20.25M, per TRD.
"[The rent reset] was somewhat higher than we had anticipated, although far, far below, I think, what the fee owner had been putting into the market at that point, which was actually very deleterious to our position because there were discussions of rent levels of double or more, which were really never to be the case,” SL Green CEO Marc Holliday said on the company’s earnings call last month regarding the property. “We took a write-down on the leasehold portion of the asset in this quarter.”
In June, SL Green moved to foreclose on the property. After winning the auction, it assumed the $194M CMBS loan from Ashkenazy and could pursue a redevelopment of the 1950s-era building. Polo Ralph Lauren left its office lease there in 2019, leaving behind a 300K SF vacancy.
The 563K SF building was listed in SL Green's 2022 annual report as an asset held for redevelopment. At the time, the building was 18.1% occupied, according to the report, and was bringing in $13.1M in annualized cash rent.
It is unclear what SL Green is planning for the property, which sits a block from Central Park, but Ashkenazy had previously sought to raise the annual ground rent payments to $80M under the assumption that a luxury condo tower could replace the building, per TRD.