Ashkenazy Enters Special Servicing on Bulgari Building Loan

Ashkenazy Acquisition has entered special servicing on a $50 million loan for a Union Square property known as the Bulgari Building because of its high-end ground-floor tenant.

New York-based Ashkenazy bought the building, also known as 1 Union Square, which includes 200-212 Stockton Street and 172-180 Geary Street, in September 2013 for $95.8 million from Frankfurt-based real-estate fund Deka Immobilien, according to property records. The $50 million interest-only loan was originated by Citigroup that same month, though it was later repackaged as a commercial mortgage-backed security with a balloon payment due this month.

The loan was characterized as a “non-performing matured” loan by the special servicer, which means that Ashkenazy not only missed the maturity payment but also the regular monthly payment, according to David Putro, head of CRE analytics at Morningstar Credit.

Ashkenazy declined to comment.

Bulgari is the top tenant in the building with nearly 40 percent of the square footage in the more than 42,000-square-foot building on the corner of Stockton and Geary, facing Union Square. The jeweler has a lease until early 2025, according to Trepp. Other luxury tenants in the building include Moncler, Lacoste and Hublot.

WeWork has the second-biggest lease in the seven-story building, with nearly 10,000 square feet and a lease that doesn’t expire until late 2029. But the location no longer shows up as a co-working option on its website and is marked as “permanently closed” in online directories.

The co-working company was recently sued by another San Francisco landlord and its well-known financial difficulties could make a refinance on the building more difficult, Putro said, not to mention the negative narrative about San Francisco and repeated retailer exits from Union Square.

Given the “non-performing” status, it’s not clear at this point that Ashkenazy is attempting to hold onto the building, though the financials are in pretty good shape. The property has a debt service credit ratio of 2.33, occupancy at 87 percent and a cash flow of $5.4 million. But several leases are ending in 2024 and 2025, including Bulgari, plus there’s the question of the WeWork lease. Interest rates currently are well above the 5.123 percent Ashkenazy has been paying for the last 10 years.

“This will in some ways be a litmus test for the current lending environment,” Putro said.