There’s a new bottom for the New York City office market.
A 2019-built office building next to Penn Station sold at a foreclosure auction for almost 25 percent of the cost to build it just a few years ago, The Real Deal has learned.
Marathon Asset Management acquired a six-story office building at 263 West 34th Street at an auction on the steps of the courthouse in Lower Manhattan for $16.5 million, according to a person familiar with the matter. Marathon put down a credit bid, or a bid using their existing debt. The next highest bid was $16 million, according to the source.
The auction comes two years after Marathon initiated a foreclosure on the property, alleging the property owner, a group led by Churchill Real Estate, defaulted on about $50 million in loans.
Churchill said in a court filing it and its partners spent over $90 million on the property, which included land and the cost to develop it.
The foreclosure could be a sign of things to come in the New York City office market. Office occupancy in New York is at just 42.5 percent, according to card-swipe data from Kastle Systems. While some owners have handed back the keys, there has yet to be a swath of bargain basement prices.
The building was nearing completion when Marathon lent the Churchill-led group $52 million across three loans to refinance debt on the project and finish construction. But after the onset of the pandemic, pharmaceutical giant Merck backed out of a six-floor lease.
Churchill tapped Avison Young in August 2020 to market the available space.
An Avison Young broker said it leased 40 percent of its assigned square footage, but it did not cover Churchill’s mortgage payments.
Churchill started missing payments and Marathon put the loan into default and accelerated the loan at default interest that June. In September, Marathon filed a foreclosure lawsuit. A receiver eventually took control of the property as the foreclosure suit dragged on.
Things got more complicated in August 2022. Isaac Hager’s Cornell Realty Management, who had a 15 percent stake in the property, put his entity into bankruptcy protection— a move designed to halt or delay a foreclosure. Hager’s company ended its bankruptcy attempt a few months later.
By the time of the auction, Marathon alleges they were owed about $64 million from Churchill and its investors because of default interest. Marathon’s plans for the building are unclear. The company did not return a request for comment.
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