New York City REIT in danger of default on NY real estate loans

Company breached covenants on loans at 4 properties

1140 Sixth Avenue in NYC with REIT president Michael Weil (Google Maps, LinkedIn, iStock)
1140 Sixth Avenue in NYC with REIT president Michael Weil (Google Maps, LinkedIn, iStock)

New York City REIT, which is in the midst of a heated proxy fight, is in danger of defaulting on loans at several of its New York properties.

The AR Global Investments-managed REIT has been in breach of covenants on more than $200 million of debt at four of its New York properties in the past year, the company disclosed in its most recent quarterly report.

In the disclosure, NYC REIT cited “ financial difficulties” of tenants and early lease expirations for the breaches at four properties: 9 Times Square, 1140 Sixth Avenue, 400 East 67th Street/200 Riverside Boulevard and 8713 Fifth Avenue.

The breaches don’t automatically put the company in default, and at one of the buildings the REIT was able to come back into compliance under the terms for the past two quarters. But the company, led by Michael Weil, warned in a filing with the Securities and Exchange Commission that it expected to be in breach on some of the loans for the coming months, and if that continued, the company could be in default.

When reached for comment, a representative for the REIT emailed that there “have been no defaults on any of the company’s loans or mortgages.”

The buildings span nearly 550,000 square feet, or about half of the REIT’s eight-property, 1.2 million-square-foot portfolio.

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The company fell out of compliance on its debt-service coverage ratios, or the amount of cash needed to cover its mortgage payments. This required it to set aside cash in separate accounts for the loans.

At 9 Times Square, it worked to pay down a portion of the loan’s principal, and at 400 East 67th Street/200 Riverside Boulevard it’s been able to get back into compliance for the past two quarters.

The disclosure comes as the tries to prevent activist shareholder Comrit Investments from electing its nominee to the REIT’s board of directors.

Late last year, Comrit nominated an independent director to the board, claiming its members were beholden to Weil and manager AR Global.

New York City REIT is part of a web of companies founded by Nicholas Schorsch. One of those companies, American Realty Capital Properties, announced in 2014 that it had misstated previous earnings. The scandal led to Schorsch’s resignation and a securities fraud conviction for CFO Brian Block.