Midtown, especially around Grand Central, is booming. But not for everyone.
The ground lease for the office building at 1140 Sixth Avenue has seen a massive valuation drop to the tune of 90 percent; it was appraised at $180 million in 2016, and today it’s worth just $17.8 million, according to Morningstar Credit.
The value per square foot, at $70, is cheaper than it once was to lease at the location. In 2012, the landlord asked $85 per square foot to rent.
The drop is startling considering that the neighborhood has generally done well post-pandemic. But the owner, American Strategic Investment Co., has been strapped for cash and losing tenants.
The 20-story building was constructed in 1931, according to tax records. Private equity giant Blackstone purchased a defaulted loan on the ground lease for about $100 million. The owner set upon a $40 million renovation.
That investment paid off. The firm sold the interest to American Strategic Investment Co. in 2016 for $180 million. The company was then called American Realty Capital’s New York City REIT.
In the summer of 2016, the company took out $99 million in loans for the building. But occupancy fell quickly. By 2019, it fell from 91 percent at underwriting to 79 percent, according to Morningstar Credit. At its lowest, in 2021, the building was more than 30 percent vacant.
Net operating income also took a hit. Once $9.5 million in 2016, it was just $1.6 million in 2023. The biggest tenant in the building is currently City National Bank, which occupies 14 percent of the space. The bank signed a lease until 2033, but at a reduced rent. The second largest tenant, a coworking space operator, received a rent abatement through part of 2024, according to Fitch Ratings. The ground lease payment is $4.75 million per year.
Ownership hasn’t made a dent in its outstanding balance, with an effective interest rate of 9.1 percent, according to the latest federal financial filing. The loan was transferred to special servicing in April. The servicer filed for foreclosure in June, saying the owner doesn’t have the funds to carry the ground lease and has agreed to cooperate. Loan documents entitled the lender to receiver in the event of default, and a judge approved in July.
Neither special servicer LNR Partners nor American Strategic Realty Co immediately responded to a request for comment.
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