CalPERS’ 787 Seventh Avenue Loses $100M of Pre-Covid Value

Achieving 96 percent occupancy in this office leasing environment may be something to brag about, but it doesn’t immunize owners from the sector’s problems.

The AXA Equitable Center at 787 Seventh Avenue in Midtown has lost $123 million of its value since the start of the pandemic, Crain’s reported. The Manhattan building was valued at $917 million by KBRA, down from $1.04 billion prior to the pandemic.

The California Public Employees Retirement System acquired majority ownership of the 51-story, 1.7-million-square-foot property for $1.9 billion in 2016. Since then, vacancies have increased slightly and cash flow has fallen by 10 percent, according to KBRA, from $73 million annually to $66 million.

While the building is almost entirely occupied, trouble is brewing. BNP Paribas slashed its footprint by a third, reducing its space by 150,000 square feet, and UBS’ lease of 120,000 square feet is set to expire next year. UBS leases a significant amount of space around Manhattan and could look to consolidate as it moves to cut costs by $13 billion over two years.

Other major tenants include New Mountain Capital and law firms Holland & Knight and Willkie Farr & Gallagher.

Also, a $780 million, 3.84 percent mortgage is set to mature in two years. Much could change by then, but the lending environment today isn’t conducive for refinancing. Ray Chun, KBRA’s head of commercial mortgage-backed securities surveillance, said a refi could have an interest rate of at least 6 percent.

CalPERS, which declined to comment to Crain’s, manages $465 billion, including $69 billion in property and other “real assets.” The massive public pension fund recently put Hollywood’s Dolby Theatre, which hosts the Academy Awards, up for sale.

— Holden Walter-Warner