Urban Edge REIT “Pleased” with Foreclosure in Brooklyn

Retail shopping REIT Urban Edge Properties has handed back its keys to the Kingswood Center, a 220,000-square-foot commercial building in the south Brooklyn neighborhood of Midwood.

The company had fallen behind on payments of a $66 million CMBS loan, which it used to buy the property at 1630 East 15th Street in February 2020 for $89 million. The lender took back possession of the building in late June, according to a filing with the Securities and Exchange Commission.

A foreclosure auction scheduled on June 27 for the three-story building “attracted bids and significant offers,” said Yanni Marmarou of the investment brokerage IPRG, which was appointed as receiver, “but the lender decided it was best to take the keys back.”

Urban Edge chief financial officer Mark Langer said on a Wednesday earnings call that he was “pleased” that the property foreclosure was completed because it reduced the company’s debt.

Problems at the office property had been brewing since its ill-timed purchase, culminating in a foreclosure lawsuit last summer after Urban Edge told special loan servicer Midland in April 2023 that cash flows generated by the property weren’t enough to cover debt service payments.

Meanwhile, annual net operating income at Kingswood Center fell to $1.9 million, while the loan was underwritten with a net income of $4.8 million, according to ratings agency Morningstar. Occupancy at the building fell to 35 percent from 73 percent.

The same year Urban Edge bought Kingswood Center, it bought the nearby Kingswood Crossing at 1715 East 13th Street, a 110,000-square-foot retail building which remains in the company’s portfolio, for $76 million.

The company reported on Wednesday that its funds from operations in the second quarter were $58 million, up from $36 million in the second quarter of 2023. Its share price fell seven percent at the closing bell, to $20.30 per share.

Urban Edge owns 76 properties with 17 million square feet of leasable space, mainly in the urban corridor from Washington, D.C. to Boston.

Retail rents in Brooklyn largely remained below pre-pandemic levels through the end of 2023, according to a report from REBNY. Anticipating rising rents nationally, Blackstone is reportedly in talks to acquire the retail REIT Retail Opportunity Investments Corp.

Urban Edge CEO Jeffrey Olsen said during the earnings call that the company was also looking to buy “typically larger format assets that include a grocer, and then also some power components, mostly like discounters and off-price retailers.”