Loan Backed By Manhattan Office Tower Blackstone Gave Up On Set To Hit The Market
Blackstone stopped making payments in March 2022 on the $308M CMBS loan backing 1740 Broadway, a 26-story office tower a block from Carnegie Hall, one of the first instances this cycle of an owner giving up on a major building.
Green Loan Services was tapped as the special servicer at the time, but Midland Loan Services replaced it earlier this year, according to Morningstar Credit. But last month, another special servicer, CWCapital, was appointed and is now planning to sell the note, according to special servicer commentary from earlier this month.
“The special servicer has determined that the note should be marketed for sale. A wide marketing of the note will commence imminently with the goal of completing a sale in calendar year 2023,” according to commentary on the Morningstar Credit database.
Blackstone bought the 621K SF tower from Vornado Realty Trust in 2014 for $605M. It lost two major tenants in recent years, with law firm Davis + Gilbert leaving for Rudin’s 1675 Broadway in 2019 and L Brands electing not to renew its 418K SF lease, instead moving to 55 Water St. in 2020. The office space, which spans the second through 26th floors, is leased to three tenants, making it just 7.4% leased according to the latest special servicer commentary.
“We wrote this property off two years ago, and in the event a buyer is identified, we will work collaboratively to transfer the ownership,” a Blackstone spokesperson told Bisnow in an email. “We aim to invest in sectors with strong fundamentals propelled by macro demand trends, which is why half of the real estate we own is in sectors like logistics, student housing and data centers that are experiencing double-digit year over year market rent growth, and why less than 2% of our owned portfolio is traditional U.S. office.”
The debt is in a single-asset, single-borrower security, which still has the $308M loan balance, as well as outstanding advances of about $36M, David Putro, the head of CRE Analytics at Morningstar Credit, told Bisnow in an email.
A recent appraisal put the building value at $175M, or 28.9% of what Blackstone paid in 2014.
“It’s significantly overleveraged,” Putro wrote.
CWCapital did not respond to a request for comment as of press time.
The buyer of the debt would have the opportunity to acquire a nearly vacant building at a discount — either for renovation, upgrades or for rent at a lower cost, Michael Gigliotti, the co-head of JLL’s New York Capital Markets office, said in an interview Monday.
“I don't think that those buildings are going to be obsolete forever. They are pretty obsolete right now, but there always is a use for low-cost alternatives,” he said. “What you're going to start to see is similar to retail.”
Manhattan office availability hit 19.9% at the end of the second quarter, according to CBRE — up from 11.7% in Q1 2020 — but older buildings with large vacancy are feeling the worst of the protracted slowdown in office leasing.
While many owners of Class-B and C buildings are family operators or smaller investors who are fighting to hold onto their properties, many of the largest real estate owners in the world have shown a willingness to call it quits on the struggling bits of their portfolio.
Just a few blocks away, at 1619 Broadway, Brookfield has walked away from the Brill Building. In July, the firm transferred the deed of the historic property to Mack Real Estate Group at a value of $216.1M. It did the same for two buildings in Los Angeles with loans totaling more than $1B in debt.
Lenders are reluctant to provide capital for office properties, especially buildings that need expensive upgrades with no guarantee of demand on the other side, and Gigliotti said that environment isn't likely to change anytime soon.
“The Fed hasn't started cutting rates, the costs of putting tenants in hasn't gone down, and demand for space in those buildings has not increased,” he said. “Nothing helpful has happened in the last year to help a building like 1740 Broadway.”
He expects an acceleration of these situations as the true value of older, high-vacancy office properties is determined.
“Think about how many other stories are just like that just sitting around that you don't even know about yet,” he said. “One hundred-plus-million square feet of it.”