Wow, that was fast: In default is a $650 million portion of a $2 billion loan package, signed in 2018.
By Wolf Richter for WOLF STREET.
“20 Times Square,” a newly built tower at 701 Seventh Avenue in Manhattan, has six retail floors, two underground and four above ground, totaling 75,000 square feet of rentable space. On top of the retail space is the 452 room Edition Hotel. Work started in 2015, when Manhattan’s brick-and-mortar retail properties were still flying high.
The property features “200 linear feet of wraparound frontage” with a “25-foot-tall glass storefront,” plus on the outside of the building – this being Times Square – an 18,000 square foot high-definition LED screen. “Be in the heart of the heart,” the property’s website says, in terms of renting retail space at Times Square. “Retail with the power to move you,” it promises.
Alas, 90% of the retail space is vacant, according to a foreclosure lawsuit filed on Monday. The lonesome tenant is a Hershey’s store, after the NFL Experience Times Square (by the National Football League and Cirque du Soleil) moved out of the 40,000 square feet of space it had rented because there weren’t enough customers.
And you know what’s coming next.
In 2018, the property, which was still being completed, was refinanced with a $2 billion loan package, led by French investment bank Natixis, according to The Real Deal at the time. This loan was used by Maefield Development to buy out partners in the deal, including Steve Witkoff, Michael Ashner’s Winthrop Realty Trust, Howard Lorber’s New Valley and the Carlton Group’s Howard Michaels. It turned out to be the largest real-estate loan in Manhattan in 2018.
Now a $650-million portion of this loan package – the leasehold mortgage – is in default, according to a lawsuit filed in Manhattan by the lender group led by Natixis, according to The Real Deal and the Wall Street Journal. The lender group – which includes Korea’s IGIS Asset Management, Israel’s Harel Insurance Investments & Financial Services, and Taiwan’s Cathay Life Insurance Co. – filed the suit to foreclose on the property. The suit claims:
- That Maefield failed to lease the retail space by the deadline on September 9, and that 90% has been vacant, despite assurances to the lenders that it was “negotiating to finalize and execute” a new lease.
- That the failure to lease the space by September 9 triggered the default.
- That Natixis had sent a final notice of deficiency in September.
- That there were “numerous undischarged mechanics’ liens recorded against the property,” filed by contractors that had not been paid.
- That Maefield has failed to sufficiently fund the reserve account to pay for construction expenses and complete the project.
Brick & mortar retail in the Times Square Bowtie area (Broadway and Seventh Avenue, and West 42nd to West 47th Streets) has been among the worst hit, in the already hard-hit Manhattan retail scene. According to Cushman & Wakefield, the vacant retail availability rates for direct and sublease space jumped from 22% in Q3 2018 to 31.1% in Q3 2019, “its highest point historically.”
According to the Real Estate Board of New York, in this area of Midtown, average asking rent plunged 49% from $3,683 per square foot per year in the first half of 2015 to $1,889 in the second half of 2019:
A foreclosure proceeding takes time. If the lenders cannot work out a deal with the borrowers, the lenders may end up with the property, which, given the current situation in the Times Square area, is unlikely to be a desirable outcome for the lenders. So they’re motivated to try to work out a deal.
The whole thing is complicated for the lenders. Due to how ownership is structured, the loan isn’t actually backed by the property, but by an entity that leases the property.
Maefield’s CEO Mark Siffin owns the entity that owns the land that the tower sits on, and this land is not part of the deal. The land is encumbered by a separate $900 million in debt, according to the WSJ, citing bond filings. Siffin also owns the entity that owns the actual building. And this entity leased the building to another one of its entities for 99 years, and it is this entity, according to the WSJ, that Natixis filed to foreclose on.