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CMA
April 12, 2019  

Floater Sought on Fifth Avenue Retail Space

A Wharton Properties partnership is in the market for a $900 million loan to refinance the retail portion of the Crown Building in Midtown Manhattan.

The collateral is a 92,000-square-foot condominium encompassing the lower floors of the building, at 730 Fifth Avenue. New York-based Wharton and its partner, Brookfield Properties, are seeking a floating-rate mortgage to run for three years, with a couple of one-year extensions. They’ve tapped JLL to help line up the financing.

The property is on the southwest corner of West 57th Street, which Brookfield’s website touts as “the most prestigious retail corner in America.” It’s at the north end of the Fifth Avenue shopping corridor, where retail rents are among the highest in the world.

Wharton, headed by Jeff Sutton, teamed up with General Growth Properties of Chicago to buy the entire Crown Building in 2015 for $1.8 billion from a local investment group that included the Spitzer and Winter families. They financed the purchase with a $1.25 billion debt package from a Deutsche Bank syndicate, consisting of a $1 billion senior mortgage and $250 million of mezzanine debt.

General Growth and Wharton subsequently sold the upper part of the building — about 290,000 sf of office space on floors four through 24 — for $475 million to New York investor Michael Shvo and Russian developer Vladislav Doronin, who planned to convert the space to residences and a hotel. The Deutsche debt package remained in place, collateralized by both condos.

General Growth was acquired by New York-based Brookfield Property last August and rebranded as Brookfield Properties Retail. In December, the senior mortgage was modified and divided, with $720 million allocated for the retail condo. An affiliate of Security Benefit Life Insurance, which is controlled by Guggenheim, wrote a new $284.5 million loan on the upper floors. The debt on the retail space would be retired with proceeds from the new loan.

Over the past few years, the retail space has been built out and reconfigured. The tenants include luxury-goods retailers Bulgari, David Benrimon Fine Art, Ermenegildo Zegna, Mikimoto and Piaget. The occupancy rate is unknown, but the Brookfield team is working to lease up vacant space.

Meanwhile, plans for the upper part of the building are still playing out. It’s expected to open as residential condos and a roughly 80-room upscale hotel sometime next year. Doronin’s company, OKO Group, took over management of the project in the wake of Shvo’s 2016 indictment on tax evasion charges. Shvo pleaded guilty to reduced charges in 2018.

The 26-story building, constructed in 1921, has a gilded facade and a roofline with a crown-like appearance that’s distinctive when illuminated at night. It was once owned by Ferdinand Marcos, the disgraced former president of the Philippines. The Spitzer team bought it for $93.6 million at a foreclosure auction in 1991, when it was 50% vacant.