A $200 million loan tied to the Prince Building, a 12-story office and retail property in Soho, landed in default last month, according to Fitch Ratings. The sponsors failed to repay the debt at maturity.
Call it Groundhog Day for Eric Hader of Allied Partners and Stanley Cayre.
Two years ago, the partners were staring down the debt’s initial maturity date as rates were climbing and occupancy at the property had yet to recover from the pandemic. They rolled up their sleeves in special servicing and bought themselves until October 2024 to shore up the building’s finances.
But things only got worse from there for the Prince Building, at 568 Broadway. Office tenants fled, leaving half the space empty. Cash flow as of June 2024 barely covered monthly mortgage payments, according to Morningstar.
Now, Hader and Cayre are hoping for a second chance, negotiating with special servicer Rialto Capital Advisors for another extension, servicer commentary reads.
Rialto is “evaluating all options,” according to Morningstar. Foreclosure is one of them.
Neither Hader nor Cayre immediately responded to requests for comment.
The sponsors aren’t the only office owners that will have a second brush with default, industry experts say.
Special servicers have approved a number of short-term extensions over the past couple of years to buoy borrowers until interest rates dropped or they could raise more capital or sign more tenants. Their hope was that owners could improve property performance enough to refinance and lenders could avoid the tedious, expensive process of foreclosure.
Rates are down 75 basis points from this cycle’s peak after a second reduction by the Federal Reserve Thursday.
But that hasn’t moved the needle for owners of office buildings with poor fundamentals. The 127-year-old Prince Building, for example, features lofted floors that cater to creatives but hasn’t had a facelift since 2009, according to Morningstar.
Lenders to owners who haven’t boosted occupancy may decide to quit kicking the can down the road, lest values sink further. The Prince Building was reappraised at $285 million in August, a 25 percent decline from its value in 2012.
“As the cuts come through and you’re an office property that still can’t refinance, then the special servicers … now they realize … the rate cuts are here, it’s not helping you, now we need to foreclose,” Neighoff said on The Real Deal’s podcast Deconstruct.
“It was tough to get a second modification on a loan if the special servicer modified it once,” Rob Verrone said on another episode.
“There were a few malls that got a couple of modifications,” Verrone added. “It’ll be interesting to see if that happens with office.”