Fitch downgrades Vornado’s 650 Madison

Rental income, occupancy have dropped at Class A office property

Vornado Realty Trust chair Steven Roth and 650 Madison Avenue (Getty, Google Maps)

Vornado Realty Trust chair Steven Roth and 650 Madison Avenue (Getty, Google Maps)

The difficulties roiling commercial real estate aren’t sparing even Manhattan’s most prestigious office addresses. 

Fitch downgraded the security linked to the mortgage at 650 Madison Avenue in the Plaza District, Crain’s reported. Vornado Realty Trust co-owns the Class A property with Oxford Properties Group and the Ontario Municipal Employees Retirement System.

The building, at the corner of Madison Avenue and East 59th Street, has clear views of Central Park and LEED Gold certification. Rental income has declined in the last year, sinking 38 percent and occupancy is down to 82 percent.

The decline in performance led Fitch to downgrade two portions of the security linked to the building’s $800 million mortgage debt. The loan-to-value ratio at the building has grown from 106 percent in 2019 to 127 percent, suggesting cash flow issues.

The move comes as the building grapples with less than ideal tenant developments. 

Ralph Lauren, which occupies more than 40 percent of the building’s 600,000 square feet, is set to have its lease expire next year. The company has suggested downsizing or even vacating the building may be in the cards, though it didn’t comment to Crain’s about its future there; Ralph Lauren plans to reduce its footprint in North America by 30 percent in the coming years.

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Another major tenant, Memorial Sloan Kettering, vacated approximately 17 percent of the property’s space a year before its lease was due to expire last June. 

The joint venture acquired the property in 2013 for $1.3 billion. Prior to the pandemic, the owners refinanced the 27-story mixed-use building for $800 million; it was 98 percent occupied at the time.

Vornado’s challenges are widespread. This year, it wrote down the value of its real estate portfolio by $600 million. Roughly 80 percent of the writedown stemmed from a handful of Midtown properties. The assets included 327,000 square feet of office space.

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The real estate investment trust isn’t alone in its commercial debt struggle. Moody’s downgraded in March the CMBS debt of a $271 million Blackstone loan secured by 11 Manhattan multifamily buildings, citing cash flow that wouldn’t cover debt service.

In fact Fitch downgraded its outlook for U.S. REITs from “neutral” to “deteriorating.” 

Holden Walter-Warner