TRD Insights: Untangling Times Square Edition’s “Gordian Knot” of debt claims

Nearly a dozen lenders from 6 countries sought foreclosure on Maefield Development’s $2.4B megadevelopment

New York /
Jul.July 28, 2020 11:37 AM
Maefield Development’s Mark Siffin and 20 Times Square (Google Maps, iStock)

Maefield Development’s Mark Siffin and 20 Times Square (Google Maps, iStock)

The past eight months have been a wild ride for Maefield Development’s $2.4 billion mixed-use hotel and retail project at 20 Times Square, home to Marriott’s Times Square Edition hotel.

The trouble started in December, when French bank Natixis — along with its many co-lenders — sought to foreclose on a $650 million leasehold mortgage they had provided in 2018 as part of a larger $2 billion package that enabled Maefield to buy out its partners.

One of the main causes for the default at the time was Maefield’s failure to lease out most of the retail space, after an NFL Experience attraction at the property closed in 2018. The coronavirus pandemic then brought new problems, and in May Marriott announced that it would be closing the hotel for good after just a year in operation.

But things didn’t end there. Two weeks ago, Commercial Observer reported that the hotel would be reopening in the fall, after various stakeholders managed to “clear up a Gordian Knot-like tangle of debt claims.”

While the specifics of the debt structuring have not been disclosed, court filings from Natixis’ foreclosure lawsuit show that as of December, the $650 million senior leasehold debt on the project was held by 11 different entities based in six foreign countries.

These documents provide a unique look into the workings of real estate loan syndication, and the wide range of international investors eager to stake a claim in prime real estate at the “Crossroads of the World.”

The $650 million loan consisted of eight promissory notes (four notes each in classes A and B) when it was first originated in April 2018, but following numerous subdivisions and syndications the number of notes eventually ballooned to 23.

Natixis itself held onto the largest piece, the $164 million A-1-A note. A fund set up by South Korea’s IGIS Asset Management — with agricultural bank Nonghyup as trustee — picked up the four B notes with a total original principal value of $200 million. Nonghyup was also the trustee for another fund set up by Korea’s AIP Asset Management, which held three notes worth $30 million, and the bank itself held another $30 million in notes through two entities.

Other Korean, Taiwanese and mainland Chinese banks also invested, as did Israeli investment group Harel and a Cayman Islands entity known as Violet Protected Asset SPC.

Court filings show that other investors, like Fortress Investment Group, Gaw Capital, and EB-5 regional center USIF, had previously held pieces of the loan before assigning them to current noteholders. A $200 million EB-5 investment in 20 Times Square was later redeployed to a nearby hotel project known as TSX Broadway, but not without some resistance from Chinese investors in the process.

As complicated as the syndication of the $650 million leasehold mortgage appears on its own, the full $2 billion financing package also features four mezzanine loans, a $30 million-a-year ground lease from Maefield to itself, and another $750 million CMBS loan on the ground underneath the hotel.

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