Pearlmark’s Tower 56 starts forced selling for Manhattan offices
With mortgage due, Chicago-based firm nears deal for boutique property
The other shoe is about to drop for New York’s nervous office owners.
With the mortgage due on its Tower 56 building in the Plaza District, Pearlmark Real Estate is negotiating a deal to sell the property at a price that will just about cover its debt, sources told The Real Deal. The Blackstone Group holds the mortgage on the 1980s-era tower and has been working with Pearlmark to allow for an orderly sale.
It’s the first major case of what many expect will be a long line of forced sales in New York and around the country this year, as owners of outmoded office buildings face the hard truth of trying to refinance in the high interest rate environment.
A representative for Pearlmark, run by Stephen Quazzo and Doug Lyons, declined to comment, and a Blackstone spokesperson did not comment.
Chicago-based Pearlmark, which in November struck a deal to sell a majority stake to the Connecticut-based asset manager Conning, is nearing a deal to sell the 33-story Tower 56 at 126 East 56th Street for a price around $110 million, according to a source close to the negotiations.
That sum will basically cover the loan held on the property by Blackstone, which lent Pearlmark $125 million in 2018 to refinance the property. That debt has either matured or is coming due shortly. Pearlmark is negotiating to retain a small piece of the property in the deal.
Pearlmark paid $158 million in 2008 to buy the boutique office building between Park and Lexington avenues and spent $30 million on improvements like a renovated lobby and updated mechanical system.
But the building has struggled to hold tenants in recent years. It stands only 80 percent occupied with an average of three years left on the remaining leases, according to marketing materials from Cushman & Wakefield, where a team led by Adam Spies, Doug Harmon and Josh King is overseeing the sale.
It’s a situation that’s set to play out over and over at buildings hit by weakening demand from the shift to hybrid work and an uncertain economy. Virtually all of the equity has been wiped from Pearlmark’s investment.
As mortgages come due this year, many office owners are expected to be in forced sale situations because their properties are worth less than the debt.
In CMBS alone, there are some $16 billion worth of commercial real estate loans in the city set to mature this year.
This is not the first bout of turmoil for Tower 56, which was built by British developer Howard Ronson’s HRO International in 1982. By the 1990s, the property’s value had fallen, and in 1996 lender Sakura Bank of Japan sold the $54 million note loan on the property for a figure that was reportedly less than 60 percent of its face value to a German-funded real estate investment trust.
The buyer was Cornerstone Properties, a real estate investment trust backed by Deutsche Bank, which negotiated to take the keys back from HRO.
The tower came under the ownership of Equity Office Properties in 2000 when it bought Cornerstone. And when Sam Zell sold his office REIT to Blackstone for $7 billion in 2007, Tower 56 was part of a portfolio of eight buildings the private equity giant flipped to Harry Macklowe.
When Macklowe couldn’t pay the mortgage he handed the property back to Deutsche Bank, which then sold it to Pearlmark in 2009.
But while Pearlmark is on the forced selling side on 56th Street, it’s looking to be on the other side of troubled deals elsewhere. The company, which has roughly $14 billion of assets under management, is raising $400 million to buy distressed properties in the Chicago area.