Foreign Lenders Take $120M Haircut at Brooklyn Office Tower

Brooklyn’s tallest office tower delivered a brutal reality check for foreign investors who bet big on the borough’s office boom.

A Canadian pension giant and a group of EB-5 investors together swallowed roughly $120 million in losses tied to the refinancing of 1 Willoughby Square, the 35-story Downtown Brooklyn office building developed by JEMB Realty, Crain’s reported. The refinancing underscores how uneven the office recovery remains outside Manhattan trophy assets.

La Caisse, formerly known as Caisse de dépôt et placement du Québec, took a $55 million write-down on a $235 million construction loan issued in 2018. The Montreal-based pension manager oversees more than $500 billion in assets.

The bigger hit landed on investors tied to the federal EB-5 visa program, which grants residency to foreigners investing in U.S. development projects. Those investors absorbed approximately $65 million in losses on nearly $100 million of mezzanine debt, according to a securities filing.

They weren’t completely wiped out because the group exchanged part of its position for a lien on a separate property in the Poconos and are slated to receive a $10 million payment from JEMB by year’s end. If that payment is missed, interest accrues at 15 percent.

JEMB, meanwhile, agreed to inject $65 million of fresh equity into the project and brought on partners, Averroes Partners and KSR, whose investment was described in filings as “nominal.”

The recapitalization helped secure a five-year, $125 million mortgage from Deutsche Bank backed by the building’s lower floors, which are 95 percent leased. The upper half of the tower was excluded from the financing.

While leasing activity has rebounded across much of the city, One Willoughby is still about 40 percent vacant on the whole, according to CoStar data, roughly double the Downtown Brooklyn average cited by Cushman & Wakefield.

That softness hammered the property’s valuation. The tower, which cost more than $450 million to build and opened in 2021, is appraised at just $190 million, according to federal filings tied to the debt restructuring.

— Holden Walter-Warner