Another Midtown office default shows refi pain persists

The jumbo loan backed by Times Square Plaza, an office tower in the heart of Midtown, transferred to special servicing this month for imminent maturity default after its owner failed to lock down new financing.

Longtime landlord The Tamares Group started shopping for debt in January to replace the $365 million loan coming due in October at 1500 Broadway, according to Morningstar Credit.

The search came up short. Now, the London-based landlord is vying for forbearance, servicer commentary shows.

Similar troubles have plagued office landlords with maturing loans citywide. Most owners facing a CMBS maturity this year got the debt well before the pandemic when interest rates were half of what they are now — Tamares is paying 3.8 percent at Times Square Plaza — and occupancy wasn’t a problem.

Now, Kushner Companies, RFR and lots of other office owners are watching loans transfer to special servicing as their hunt for new financing drags on.

From a revenue perspective, Times Square Plaza is in fine shape. Cash flow covers twice the monthly interest payment, Morningstar data shows.

But lenders might be worried about whether Tamares can maintain a healthy figure at what will be a much higher interest rate and perhaps a lower occupancy: One quarter of the property’s leasable space was vacant at the end of the first quarter, according to Morningstar.

Times Square Studios, home of ABC News’ Good Morning America, is the largest tenant, with 13 percent of the building’s net rentable area, under a lease expiring in May. NASDAQ, the second largest, occupies 10 percent and its lease expires at the end of this month, public loan data shows.

The fate of those spaces is unclear.

Office properties’ depleted value means lenders won’t provide as much debt on them as they once did. Ten years ago, 1500 Broadway was appraised for $810 million, according to Morningstar. But office valuations, even for buildings that retained tenants, have been hit hard by slipping revenues and rising interest rates.

It’s unlikely 1500 Broadway escaped that vortex.

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