What tenants pay at Stellar Management’s One Soho Square

787K sf Hudson Square complex has investment-grade rent roll, but subleases raise concerns

What tenants pay at Stellar Management’s One Soho Square

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With more than 9,000 apartments and two million square feet of office space in its New York City portfolio, Larry Gluck’s Stellar Management has established itself as a major Big Apple real estate player while keeping a relatively low profile.

One of the developer’s larger commercial projects in recent years has been One Soho Square, a 787,000-square-foot office and retail complex formed from the merger and repositioning of two Hudson Square office buildings.

The property serves as the U.S. headquarters for five companies, and two-thirds of its rent roll consists of investment-grade tenants, which allowed it to weather the pandemic virtually unscathed.

Stellar and its partner, Imperium Capital, have lined up a $905 million refinancing for the property from Goldman Sachs, Deutsche Bank and Bank of Montreal — the latest in a long string of big-ticket CMBS refinancings the city’s office market has seen since last fall.

Documents associated with the securitization provide a closer look at the property’s finances.

As of last month, One Soho Square was 92.5 percent leased to 10 office tenants and six retail tenants, according to a rating report from DBRS Morningstar.

The largest tenant at the property, with more than a quarter of the total space, is healthcare technology company Flatiron Health. Founded in 2012, the firm — which specializes in data analytics for cancer research — was acquired by Swiss pharmaceutical conglomerate Roche Holdings for $1.9 billion in 2018.

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The second largest tenant is healthcare giant Aetna, which inked its 106,000-square-foot lease at the complex shortly after striking a $69 billion merger deal with CVS Health. CVS also occupies ground-floor retail and storage space at the property.

Other major tenants at One Soho Square include Estée Lauder subsidiary MAC Cosmetics, e-cigarette startup Juul Labs, eyewear retailer Warby Parker, skincare and makeup company Glossier and digital marketing tech firm DoubleVerify.

Trader Joe’s is the largest retail tenant at the complex and “serves as a major foot traffic generator,” according to DBRS, with “good exposure” facing Spring Street and Soho Square Park. Cannabis product retailer CBD Kratom recently signed a 10-year, 800-square-foot lease and is expected to open for business this month.

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Reflective of One Soho Square’s mostly investment-grade rent roll, office rent collections held strong at 100 percent throughout the pandemic, and only one retail tenant — Torch & Crown Brewing Company — received rent relief.

Meanwhile, office tenants have yet to bring most of their employees back. Physical occupancy at the buildings was less than 5 percent in May, and only rose to about 10 percent in June.

One concern DBRS analysts raise in their report is the substantial amount of sublease space at the property, with Flatiron Health looking to offload about 18 percent of its space, while Juul has put all of its space up for sublease.

Flatiron had previously offered nearly half of its space for sublease as part of a plan to expand into it later on. Juul signed its lease in 2019 and had not yet taken occupancy when the pandemic struck. In recent months, New York’s glut of sublease space has shown signs of turning around, as companies are beginning to take space back off the market.

The new financing, which includes a $120 million mezzanine loan, replaces a $900 million CMBS refinancing Stellar secured for the property just two years ago, which was also led by Goldman Sachs. The new loan carries a fixed interest rate of 2.725 percent — a full percentage point less than the 2019 loan — and has a seven-year term with no extension options.