Five months after taking back 100 Church Street from the Sapir Organization, SL Green and Gramercy Capital won the auction this morning to take over the Lower Manhattan office tower for only $10,000, as investors grew leery of millions of dollars in debt and empty space at the troubled office tower.
SL Green, the former owner of Gramercy Capital and a current investment partner, will share 50-50 ownership of 100 Church. SL Green took over management and leasing of the building in August, according to sources, and will remain in that role.
The new owners must also work out the defaulted senior debt, a $145 million senior mortgage from Wachovia Bank.
SL Green President Andrew Mathias, in an October conference call with investment analysts, said he expected the company to acquire additional properties through similar mezzanine auctions.
“As we have indicated on prior calls, we expect this market environment to produce additional opportunities within our mezzanine portfolio like 100 Church, giving us opportunity to grow our portfolio with quality assets at an attractive basis,” Mathias said on the call, according to a transcript by Seeking Alpha.
The Sapir Organization, a Manhattan-based real estate development firm, defaulted on the senior mortgage from Wachovia and a $30 senior mezzanine loan from Gramercy back in August, after a prospective tenant backed out of a lease agreement.
As previously reported by The Real Deal, Claremont Preparatory High School backed out of a deal to lease 255,000 square feet of space, alleging that Wachovia Bank nixed a deal to build out the school’s space. Sources said the bank was concerned about the credit quality of the school.
Sapir, led by billionaire Tamir and his son Alex Sapir, filed suit in New York State Supreme Court, against SL Green and Wachovia, claiming they caused the school to back out of its lease and led to the default on the loan.
Sapir had previously spent more than $20 million to renovate the public areas at 100 Church, and signed Niche Media to relocate its headquarters to the building.
Sapir, in court documents, claimed they entered into negotiations with other firms to move into the building, including El Al Airlines, New York Life and several other firms.
A spokesperson for SL Green declined to comment, however SL Green denied the allegations in court documents.
Under mezzanine foreclosures, the senior debt is usually auctioned off and the subordinate loans in the so-called capital stack are wiped out.
Gramercy was the holder of an intermediate level $30 million mezzanine loan, and the property had two junior level mezzanine loans of $25 million from Wachovia. One of these loans was sold to Gramercy and the other to Prudential Real Estate Investors.
Y. David Scharf, attorney for Sapir, was not immediately available for comment.
The auction is the second major mezzanine auction in Manhattan in a month. Just last month, the W Union Square Hotel was auctioned for $2 million to a Philadelphia-based hedge fund that held the senior mezzanine loan.