Fifth Avenue Office Building Staring Down Default

385 Fifth Ave.

A nearly century-old office building in New York City's Garment District was unable to pay off its loan when it matured earlier this month, another example of the building stress in the city's commercial real estate sector.

The debt for the 100K SF office building at 385 Fifth Ave., which has a remaining balance of $32.9M, was sent to special servicing ahead of the loan's maturity on June 5, according to a regulatory filing from the CMBS trust that owns the loan.

An affiliate of Manhattan-based Hilson Management Corp. took out a $36.1M, 10-year mortgage from Morgan Stanley on the building in 2013, according to city deed records.

The loan was transferred to special servicing in April for an imminent maturity default, and a pre-negotiation agreement with the borrower was signed in May, according to the servicer commentary.

“The special servicer is currently reviewing rights and remedies under the loan documents while evaluating proposals received from Borrower,” the commentary reads.

The master servicer on the loan, securitized in Morgan Stanley Bank of America Merrill Lynch Trust 2013-C12, is listed as Wells Fargo and the special servicer is listed as CWAsset Management, according to a Securities and Exchange Commission filing.

The property, a 16-story building at the corner of Fifth Avenue and 36th Street, is over 90% leased to a wide mix of tenants, Hilson Management Corp. President Jeremy Schwalbe told Bisnow Friday.

“We are actively engaged in discussions with special servicer and we are committed to the asset. We’ve been long-term owners, and we’re confident we’ll arrive at an amicable resolution,” he said. “We’re confident it [will] all work out it and be a beep on the radar screen.”

The Schwalbe family has owned the building since 1975, according to city property records. The building was built in 1929 and counts WeWork as an office tenant and The Vitamin Shoppe among its retail tenants.

Although a loan that goes into special servicing is an indication it is facing trouble, it doesn't always end badly. Special servicers can pursue a range of strategies to resolve a loan with a positive outcome for the borrower and the lender, as Bisnow reported this month.

Tishman Speyer, for example, in April, opted to send its $485M loan on 300 Park Ave. to special servicing early to get and work to a “mutually beneficial extension.” The real estate giant agreed to terms on a two-year extension with its special servicer, which included paying $30M into a reserve fund, The Real Deal reported.

The delinquency rate on office CMBS loans in June was 4.5%, up from 1.6% six months ago, according to Trepp.

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