The sale of a nearly 1 million-square-foot Manhattan office building listed on the online auction site Ten-X was completed Tuesday for only $8.5 million.
That’s 97 percent less than the $332.5 million that the seller, Swiss bank UBS, paid for the Midtown property in 2006. The loss on the building at 135 West 50th Street was minimally offset by a $6 million gain UBS realized by buying and selling the ground beneath it in the interim.
UBS and its brokers at JLL listed the 920,000-square-foot building for sale on the online platform. The two-day auction kicked off July 30 with a starting bid of $7.5 million. The sale ended the next day after Ten-X lowered the reserve price. The winning bidder, whose identity has yet to hit property records, closed about 70 days later.
Ten-X was an unusual place to sell such a large property. Such online listing platforms are often used by owners looking to unload lower-quality, middle-market properties, not where major institutions go to sell big-time assets.
UBS might have just been eager to wash its hands of the property and write off the loss, rather than try to salvage more value from an aging building struggling to attract tenants in a city with a glut of similar properties.
UBS bought the ground in 2012 for $279 million, then sold it to ground-lease REIT Safehold in 2019 for $285 million. Safehold still owns the ground under the 1960s-era Class A building, which is 35 percent occupied and recently underwent a $76 million renovation, according to the listing.
After selling Safehold the land, which is a block west of Rockefeller Center, UBS signed a $221 million lease that expires in 2123. The $800,000 monthly payments will now be the responsibility of the new building owner.
The new owner may choose to convert the dated office building to residences or tear it down and build new.
Ground leases have been especially hard hit since the pandemic because, as offices have emptied, the monthly rent payments have come to exceed the revenue generated by the property, said Haynes Boone attorney Brett Dockwell.
“I have seen and been involved in a number of ground leases where they’re just not economically viable post-Covid,” Dockwell said. “Basically you have a position that’s underwater.”
In those cases, the building owner will often try to renegotiate the ground rent, only to find the landowner is not willing to do that. In the meantime, the building owner stops making debt service payments and struggles to keep up with the ground rent payments. The landlord eventually terminates the lease and takes control of the building.
“Those properties where they have a significant portion of their office leases turning over in this market are likely looking at reduced cash flow,” Dockwell said. “Properties that have a much more manageable turnover in their leases in the next three to five years probably aren’t as concerned and they’ll make it through this readjustment.”
Others may end up in fire sales like the one on Ten-X. The auction site was founded in 2007 as Auction.com, a residential real estate deal platform, and has been backed by investors such as Barry Sternlicht’s Starwood Capital, Stone Point and CapitalG.
In 2016, it launched a separate platform known as Ten-X Commercial, which provided a marketplace for commercial properties.
In 2020, commercial real estate data giant CoStar Group purchased the commercial real estate portion of the platform for $190 million.
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