When in distress, convert.
That’s the rationale driving Scott Rechler’s rescue plan for the debt-burdened Helmsley Building.
Months after a monster loan backed by 230 Park Avenue landed in special servicing, then maturity default, the head of RXR is analyzing whether a conversion of the office building would boost revenue enough for his firm to eventually right the $670 million mortgage.
“Borrower is exploring a change in optimal use for a portion of the building, which could significantly impact value,” special servicer commentary on Morningstar Credit details.
The commentary does not specify what the new use would be, but almost every office owner considering adaptive reuse is looking at a residential conversion.
The principal also locked down a 90-day forbearance period this month “to allow further investigation into conversion plausibility,” the commentary reads.
Rechler did not respond to a request for comment.
The RXR head may have Gov. Kathy Hochul to thank for the option.
In April, Albany okayed a 35-year tax break for office-to-residential conversions that cuts 90 percent off the tax bills tied to buildings below 96th Street.
230 Park is between 45th and 46th, just above Grand Central.
Office owners must build just six residential units to qualify, a quarter of which must be made affordable.
That may be why Rechler is only rethinking “a portion of the building.” The 35-story tower is 83 percent occupied and was last renovated in 2018, meaning RXR may neither need nor want to rework the entire asset.
Major office office owners have hailed the incentive as a game changer for assets sucked into the downward spirals of declining occupancy and property values.
Marc Holiday of SL Green — the city’s largest office landlord — has said he expects 20 to 40 million rentable square feet of office to become residential under the program. That includes the 75,000 square feet that the firm’s 750 Third Avenue, slotted for conversion, spans.
Others in the industry have questioned whether the tax break would make up for the locked-in rents that the program’s affordability component requires.
But 230 Park may be eligible for additional incentives. The Beaux-Arts-style tower is landmarked, meaning Rechler could apply for the federal government’s Historic Preservation Tax Incentive, which offers a 20 percent income tax credit.
If the conversion pencils, it’s likely that Rechler’s lender — the bondholders on the CMBS loan — will go for it, betting on the best path to reduce losses.
It’s unclear what 230 Park is valued at now but its eroding tenancy coupled with the rise in interest rates haven’t helped. Rechler borrowed at a floating rate and absent an extension, will need to refinance at a high rate, which financials show revenue cannot support.
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In December, the Helmsley Building was only pulling three-quarters of the cash needed to cover loan payments.
If the adaptive reuse plans don’t come to pass, it’s possible 230 Park could end up with the other office assets Rechler has deemed not “digital” quality, but defunct “film.”
That is, properties he would rather hand back to the lender.