05/06/2011

Vornado Buys Note on NY Offices

Vornado Realty has acquired a $19.5 million junior mezzanine loan on two Midtown Manhattan office buildings owned by developer Joseph Moinian.

Vornado paid par to buy the fixed-rate loan from another New York REIT, Resource Capital. The note is backed by the 499,000 square feet in the adjoining buildings at 535-545 Fifth Avenue, spanning the block between East 44th and East 45th Streets. Slate Realty Capital of New York advised Resource on the deal, which closed Tuesday.

The loan is performing, but Moinian has struggled at times with the buildings’ debt service. Payments on the senior mortgage have been late, but within the grace period, in seven of the past 18 months, according to servicer reports. Occupancy was 86% as of November, but leases for roughly 93,000 sf, or 19% of the space, are scheduled to expire this year and next.

The property’s reserve fund is nearly empty. Market players said Moinian might be reluctant to put in more capital, and Vornado may be hoping for a chance to foreclose.

Meanwhile, SL Green bought the $19.5 million senior mezzanine loan on the buildings for roughly 94 cents on the dollar in February. The buzz is SL Green may be interested in helping Moinian recapitalize the property. Both mezzanine loans mature in 2016, along with the $177 million senior mortgage, which was securitized via a $1.9 billion offering (Credit Suisse Commercial Mortgage Trust, 2006-C3).

Moinian bought 535-545 Fifth Avenue and the 60,000-sf building at 509 Fifth Avenue from Emmes Asset Management of New York in 2006 for $260 million. Last year, he sold 509 Fifth Avenue to Murray Hill Properties of New York for $32 million.

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