The owner of a Garment District office building that failed to pay off its mortgage now faces the prospect of losing its building entirely.
On Tuesday special servicer LNR Partners filed a foreclosure motion against owner the Eretz Group in regard to the loan backed by 237 W. 37th St., an 18-story office building near Eighth Avenue.
The $41 million note, which is backed by bondholders by way of a security, let a January deadline come and go without forking over the principal, according to a complaint filed Tuesday in Manhattan Supreme Court. Eretz apparently could not figure out a way to refinance the debt or strike some kind of deal with LNR, which had been put in charge of the troubled loan months ago to protect the bondholders.
Three months later, LNR is moving to sell the 162,000-square-foot, prewar building in order to pay off the debt, which was issued by the lender Cantor Commercial Real Estate in 2014.
When reached by phone, Nicholas Mok, an Eretz executive, declined to comment on the case. But at first blush, the building, a midblock property where ad-tech firms and event-planning companies pay annual rents of about $30 per square foot, does not seem to be in terrible shape.
Its vacancy rate is 11%, according to real estate data firm CoStar, far below some other Class C buildings in the neighborhood that have been half-empty ever since hybrid work became ingrained.
But Eretz, whose founder is Abraham Talassazan, is likely struggling because any replacement loans are burdened with higher-than-usual interest rates. Indeed, the building’s current mortgage enjoys a 5% rate, CoStar says; rates on commercial loans today can be twice that, a daunting number in a slow office market.
A decline in real estate values may also be a factor. As with other older office buildings outside Manhattan’s core business districts, 237 W. 37th St. has seen its prospects fall sharply in recent years. Its current market value, according to the city, is $31 million, down from a prepandemic estimate of $39 million. (City-appraised market values are usually about half of actual market values.)
An active player in the Manhattan office sector in the past two decades—its portfolio also includes 295 Madison Ave., 177 Lafayette St. and 9 E. 40th St.—Eretz seems to have completed some of its purchases with a high amount of leverage.
Indeed, in 2007, when Eretz snapped up 237 W. 37th for $34 million, it financed the deal with an acquisition loan for the entire amount, according to the city register, though it later refinanced that loan with Cantor in the $41 million deal.
Since Covid, the daily head count in office buildings has averaged between 50% and 70% of prepandemic levels, depending on the measure used. Unsurprisingly, then, some tenants are dumping large chunks of no-longer-needed space. In fact, the availability rate for Manhattan office buildings hit a record high 18% in the first quarter of this year.
The foreclosure lawsuit against No. 237 is at least the second against a Manhattan commercial building in a week. A Foot Locker retail site on West 34th Street owned by a team led by Wharton Properties was the target of a similar court action on Monday.
A message left at LNR’s Florida office was not returned, and Scott Tross, the lawyer handling the case for the company, had no comment.
C. J. Hughes , 2024-04-03 19:39:40
Source link
