Aareal Bank looks to unload more bad office debt

Aareal Bank is emerging as New York’s quick-trigger distressed loan seller.

The German real estate lender has already moved to sell loans on L&L Holdings’ Metropolitan Tower and RXR’s 61 Broadway, and is now looking to sell a third non-performing loan on a Chelsea office building.

The bank, through its U.S. subsidiary Aareal Capital Corporation, has put the $65 million loan up for sale backing Lexin Capital’s 12-story office building at 229 West 28th Street, The Real Deal has learned. 

The 157,000-square-foot building is only 58 percent leased, according to marketing materials from Newmark. The non-performing loan could be used to take over the property, which could be converted to self-storage or residential use.

There were not too many alternatives to refinance the debt when the loan’s maturity date arrived, according to Lexin Capital’s Metin Negrin. He said he’ll have to wait and see what happens with the loan sale to figure out the next steps.

“It all depends on what happens and how this goes,” he said. “We’re still here and we’re still working at the building trying to lease it up, still working hard to maximize everything.”

A representative for Aareal Bank could not be immediately reached for comment.

The Lexin loan marks at least the third large piece of distressed debt that Aareal has sought to sell in recent months. One source suggested that with the wall of maturing debt hitting, the bank may be looking to get ahead of the pack and clean up its books.

The bank reported profits of 25 million euros in the second quarter, down from 61 million a year earlier. Aareal flagged 161 million euros in expected losses on loans, about 100 million of which was tied to U.S. offices.

“If you ask me now, if this is all or if there will be new charges for our US office property portfolio, what I can say is, as of today, we cannot give you a conclusive answer,” Chief Financial Officer Marc Hess said on the bank’s August earnings call.

Metin Negrin’s Lexin Capital bought the building on West 28th Street, dubbed the Caxton Building, in 2014 for $81.5 million and refinanced the property in 2016 with a $73 million loan from Aareal.

Lexin put the property up for sale in February 2020, at which time it was 90 percent leased, aiming for a price around $138 million. 

A Newmark team led by Adam Spies, Adam Doneger, Dustin Stolly and Jordan Roeschlaub is marketing Aareal’s loan on the property.

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