Collateral damage: $700M in NY office debt lands in special servicing

Office distress is mounting, and its poster children are abundant in New York.

Nationally, delinquency rates for CMBS office loans in July hit 8 percent, a level last seen in 2013, according to Trepp. Special servicing rates as of last month were up 2.6 percentage points from last year, Morningstar Credit reported.

A close-up of the New York market shows what is driving those metrics. This week was especially brutal.

At least $700 million in debt backed by office assets owned by some of the city’s biggest names — RFR among them — was flagged by Morningstar for transfers to special servicing.

The week in New York showed landlords continue to bleed tenants and tend to face-plant when loans mature.

521 Fifth Avenue

At $242 million, the loan backed by Savanna’s Grand Central tower was the largest to land in special servicing, according to a Morningstar update.

Savanna was plugging holes in its ship last summer, working to push back maturity dates across its portfolio and divest from certain office assets as defaults mounted.

The firm exhausted its final maturity option for 521 Fifth’s loan in mid 2023, bumping the loan’s due date to June of this year. The building had signed some tenants post-pandemic, but on the promise of lengthy rent concessions.

Despite that leasing, occupancy at 521 Fifth was just 74 percent at the end of last year and revenue was too low to cover monthly debt payments.

Savanna is vying for one more extension. Its lender is also considering foreclosure, according to Morningstar Credit.

A spokesperson for Savanna declined to comment.

Aby Rosen

RFR Holding must be on a first-name basis with special servicers by now.

Loans tied to its Seagram Building, 285 Madison Avenue and a Union Square property have all landed with the mediaries in recent years. On the first two, Aby Rosen’s firm managed to hash out extensions.

It’s possible the landlord will have the same luck with 17 State Street. The FiDi office building’s $180 million loan transferred this month after RFR failed to refinance the debt at maturity.

The property is financially sound: Occupancy percentage is in the mid-90s, according to Morningstar. Cash flow as of the end of last year was 3.5 times greater than debt service.

A new loan at a higher rate would reduce that ratio. Still, the strong fundamentals will carry weight with lenders. Another extension may be in the offing. RFR also has $40 million in mezzanine debt on the property, according to Morningstar.

A spokesperson for RFR said, “17 State Street continues to perform well and we will be refinancing the existing debt in the near future.”

Fine line

In Brooklyn Heights, 16 Court Street, or the Montague-Court Building, is on the precipice.

In the first quarter, cash flow was just covering interest payments on the $111 million loan and occupancy was 70 percent, owner CIM Group reported. And even that low tenancy figure is shaky.

When the loan transferred to special servicing this month, commentary said upcoming lease expirations would likely impair CIM’s ability to pay its debt. The City University of New York rents nearly 15 percent of the building through a lease expiring Aug. 30.

In CIM’s favor, it has three years until the debt comes due, which could facilitate a modification. A spokesperson for the firm did not immediately respond to a request for comment.

1166 Sixth Avenue

The so-called International Paper Building is bracing for the loss of its top tenant, hedge fund D.E. Shaw, which leases 43 percent of 1166 Sixth Avenue and is heading for the exit at the end of this month, according to Morningstar.

Another anchor, fintech firm Arcesium, with 20 percent of the net rentable area, was also shopping for new space as of early June, a few weeks before its lease expired.

The $85 million loan tied to 1166 Sixth transferred to special servicing this month for imminent monetary default, meaning the lender has little confidence that borrower Edward J. Minskoff Equities will keep paying.

However, EJM has until early 2027 before the loan matures. The property is also tied to $45 million in subordinate debt. The firm did not respond to a request for comment.

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