The appraised value of Shorenstein Properties’ 1407 Broadway dropped from $510 million in 2019 to $136.1 million this year. The decline amounts to $334 per square foot, according to an analysis by Morningstar.
It’s the latest blow for the office tower, which sits between West 38th and West 39th streets in the slow-to-evolve Garment District. In March, the special servicer on the building’s $350 million CMBS loan filed to foreclose on the debt, months after Shorenstein stopped paying interest on it.
Shorenstein’s defaulted or at-risk debt is approaching $1 billion, the result of declining values in the office market following the pandemic. Commercial Observer first reported the drop at 1407 Broadway.
Barclays made the $350 million loan in 2019. The Real Deal previously reported that the bank and Shorenstein had been negotiating following the default. Shorenstein declined to comment for this story, and Barclays did not return a request for comment.
The Financial Times last week cited 1407 Broadway in a story about troubled loans maintaining top ratings from credit agencies, similar to the way residential mortgage-backed securities got high marks during the housing bubble but proved to be worthless. In this case, Fitch graded $187 million in bonds on the Broadway building’s debt as AA. Shorenstein has not made a payment on the loan since July 2023.
Shorenstein has struggled to keep the building, which is near Times Square, full. By the end of 2022 it was 16 percent empty, up from 6 percent in 2019, when the $350 million loan was issued, according to Kroll Credit Profile.
The dramatic drop in valuation might have been caused by a vacancy rate that has since increased, or is expected to as leases expire. It’s part of a broader trend in distressed commercial real estate debt in major cities following the pandemic, and especially in older office districts.
The Garment District suffered with outdated zoning for years as politicians sought to maintain its manufacturing jobs. High-paying tenants instead moved to Hudson Yards and the Grand Central area, which were rezoned during the Bloomberg and de Blasio administrations, respectively.
Though observers believe New York City’s office sector has avoided a “doom loop” scenario — in part because of demand for high-end space — vacancy rates remain much higher than before Covid. They rose from 6.4 percent in early 2020 to 12.8 percent in 2024, according to data from the city comptroller.
The ground lease on 1407 Broadway expires in 2030, though it’s extendable to 2048. According to Morningstar, the value of the property may also be hampered by the upcoming end date, which could trigger a jump in rent for the land.
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