As more multifamily borrowers negotiate for debt relief, Icon Realty Management is walking away with a win.
The New York-based landlord locked down a two-year extension on $143 million in CMBS debt it had failed to pay off at maturity in January, according to Morningstar Credit.
The pool of 18 loans backed by as many properties went to special servicing in February along with $30 million in debt that shares the same collateral but is held in a separate pool.
It’s unclear if the firm also got an extension on the $30 million piece. Icon principals Terrence Lowenberg and Todd Cohen did not respond to a request for comment.
In the world of workouts, the two months it took Icon to resolve its default equates to a New York minute. Some modifications can take years.
Icon promised to pay down the principal on each of its outstanding loans, according to Morningstar, which likely sped negotiations. The special servicers that work on behalf of CMBS bondholders are more likely to play ball if a borrower brings additional equity to the table, showing commitment to their assets and reducing lenders’ risk.
Icon had been pushing for an extension before the loan landed in special servicing — another brownie point in workout talks. Lenders more readily accommodate proactive borrowers, according to CMBS attorneys and researchers.
The firm’s status as the sole sponsor in the CMBS pool worked in its favor, too.
Often, CMBS pools hold a mix of loans tied to different asset classes and sponsors, providing a cushion should any one borrower default. In Icon’s case, had the firm walked away from its assets, there would have been no other mortgages to buffer losses to the Icon trust.
Icon ran into trouble on the multifamily debt last year when servicers watchlisted 11 properties, noting their revenue wasn’t adequately covering debt service. The buildings include 316 West 14th Street in Chelsea, 808 Lexington Avenue in Lenox Hill, 358 and 362 11th Street in Park Slope, 42 Sidney Place in Brooklyn Heights and 295 Degraw Street in Cobble Hill.
Unlike with other struggling multifamily sponsors, rising interest rates weren’t the issue. Icon borrowed at a fixed rate of 5.25 percent. The culprit appeared to be revenue shortfalls.
The portfolio is about one-quarter rent-stabilized, which might have pressured cash flow. Stabilized rents have barely increased because of state legislation in 2019. The law delivered a severe blow to the landlords whose acquisition strategies centered on turning stabilized units market-rate, as analysts believe Icon was planning to do.
Icon took out its debt in December 2018, according to Morningstar, six months before the 2019 rent law passed.
“The properties have potential for additional revenue bumps if rent-restricted units are legally vacated and converted into market-rate units,” commentary in Morningstar reads.
Icon also struggled with rising vacancy at some properties. As of October, 522 East Fifth Street was 70 percent occupied as of October; 316 West 14th Street reported 68 percent occupancy in September, according to Morningstar.
The two-year extension should give Icon more time to fill vacant units, and, as the industry’s catchphrase goes, “survive ’til ’25.”
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