The Real Deal New York

2 Herald Square’s leasehold to hit auction block in February

Judge grants summary judgment to lender SL Green over defaulted $250M first mortgage
By Mark Maurer | November 21, 2017 03:40PM

Marc Holliday and 2 Herald Square

The troubled Midtown office building 2 Herald Square is heading to the foreclosure auction block in February, sources told The Real Deal.

A New York State Supreme Court judge granted summary judgment Monday in favor of lender SL Green over the leasehold’s $250 million first mortgage. The judgment thus orders a sale of the leasehold, which had been repeatedly delayed for much of this year.

The leasehold’s owners, Sitt Asset Management and more than 80 limited partners, cannot stop the auction from taking place. The next step would be the court’s appointing of a monitor to calculate the full liabilities owed on the 11-story, 354,000-square-foot property, sources said.

Around the time that SL Green bought the defaulted mortgage in May, Sitt Asset Management and partners made moves to sell the leasehold to interest bidders such as JEMB Realty and Jamestown Properties. Those deals fell through and Paramount Group, which has a preferred-equity position in the building, became a front-runner to take control of the leasehold after receiving court approval in July. But Paramount has since held off on those plans in recent months. The 70-year leasehold expires in 2077.

SL Green, which filed a motion for summary judgment in July, has been planning to move ahead with foreclosure. Now, in the wake of the court ruling, the real estate investment trust intends to bid in the auction early next year, sources said.

The New York Post reported Tuesday that the court authorized foreclosure.

SL Green declined to comment, and Sitt Asset Management could not be reached for comment.

Amazon recently signed a membership agreement at the building for all of the 122,000 square feet of WeWork’s space at the building, which also has the addresses of 950 Sixth Avenue and 1328 Broadway, TRD reported last week. The e-commerce giant has also been eyeing a portion of the retail component, at which Victoria’s Secret is the sole tenant.

The leasehold’s owners have struggled to fill 59,000 square feet of vacant retail space at the building, amid foreclosure proceedings and an ongoing legal dispute among the Sitt family members.