10/05/2012

Big Defaulted Loan on NY Tower Hits Market

Special servicer CWCapital is marketing a defaulted $219 million mortgage on an overleveraged Manhattan office building that is in foreclosure proceedings.

The loan, backed by the 333,000-square-foot property at 315 Park Avenue South, matured in June. The borrower, BCN Development of Denver, has been unable to refinance the debt, but has continued to make the loan payments.

The offering is expected to attract investors interested in taking over the fully leased property. But the buzz is that BCN, led by investor Craig Nassi, is likely to put up a fight, perhaps by filing for bankruptcy. Meanwhile, BCN is continuing a last-ditch effort to line up a new mortgage via advisor Carlton Group.

Nassi declined to comment on the possibility of a bankruptcy filing. But he said that he and CWCapital were continuing to discuss a potential settlement. “CWCapital is working with us in harmony, and they are a very understanding and intelligent group of people,” he said.

BCN acquired the building in 2007 for $280 million from a venture controlled by investors Joseph Mizrachi, Fred Bennetti and Hubert Guez. It financed the purchase with a $249.5 million debt package from UBS. The bank securitized the senior $219 million portion via a $5.4 billion pooled offering (J.P. Morgan Chase Commercial Mortgage Securities Trust, 2007-LDP11). The subordinate debt has evidently been retired, but the details couldn’t be learned.

CWCapital, which is the special servicer of the 2007-LDP11 deal, this week retained Eastdil Secured to market the securitized mortgage, which has a 5.8% coupon. Rockwood Real Estate, which is owned by CWCapital, is co-brokering the offering.

The building’s value plummeted during the downturn. According to a servicer report, the property was appraised at $178 million in November 2011. In the most-recent appraisal, in July of this year, the valuation was increased to $210 million — still below the amount of debt.

Some market pros think the building is now worth somewhat more. It produced $17 million of net operating income last year, according to a servicer report. That would indicate a $283 million valuation at a 6% capitalization rate. But lead tenant Credit Suisse, which leases 82% of the space, isn’t expected to renew at rollover in April 2017. That leasing risk is dragging down the valuation.

Nassi said the property is a candidate for conversion down the road. “It’s a great asset,” he said. “We have great tenants, and it has great future possibility for a hotel or residential conversion, given the location. That is the main reason we were attracted to the building when we bought it.”

CWCapital filed for foreclosure on July 27, according to the servicer report, which noted that BCN has continued to make its $1.1 million monthly payment since the loan matured in June. It’s not unusual for a servicer to file for foreclosure and continue negotiations with the borrower, referred to as a dual-track strategy.

BCN put the property on the market last year via Carlton, seeking as much as $310 million — a price some observers said was unrealistic. BCN entertained offers for either a stake or full ownership, but no transaction occurred.

The 20-story building is on the east side of Park Avenue South at East 24th Street, one block east of Madison Square Park in the Midtown South submarket. It was constructed in 1910 for industrial use and was converted into offices in 1966. The top five floors were added in the 1980s and 1990s. The property was renovated in 2007.

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