10/21/2009

Swig Seeks Partner for Squeezed NY Tower

Troubled developer Kent Swig is trying to drum up an equity partner for a Lower Manhattan office building that lost its lead tenant last year.

A Swig partnership has approached several investors about injecting equity into the 868,000-square-foot building at 110 William Street, according to people familiar with the discussions.

There's talk that Swig's company, Swig Equities, is also willing to include other properties in a recapitalization. New York-based Swig, which has faced multiple lawsuits over defaulted loans, didn't return calls seeking comment.

The William Street building is up-to-date on its loan payments, but its cashflow has fallen below the level needed to service the debt, putting the Swig partnership in a cash squeeze.

The loan was put on a servicer watch list in March. Swig told the servicer, KeyCorp Real Estate, that it was trying to fill vacant space, renew leases and limit spending for tenant improvements.

In 2004, Swig teamed up with Longwing Real Estate Ventures, the U.S. real estate arm of Dubai's royal family, to buy the property from Trizec Properties of Chicago for $164.5 million. Swig and Longwing refinanced the property in 2007 via Lehman Brothers, which provided a $156 million loan. Lehman securitized the five-year, interest-only mortgage via a $3.2 billion pooled deal (LB Commercial Mortgage Trust, 2007-C3).

The building was 99% occupied at the refinancing, but is now just 84.5% filled. Last September, American Home Mortgage vacated 101,000 sf. The building's net cashflow is projected at $8.9 million this year, below the $10.8 million of debt service.

The Class-B building was appraised at $264 million in 2007, but market players estimate the value has fallen to roughly the amount of the mortgage. One veteran broker said valuing buildings like 110 William Street is difficult because it's unclear when the Lower Manhattan leasing market will turn around. “Downtown leases have always been at a 50% discount to Midtown, but tenants now can leave older buildings like 110 William and take advantage of sublease opportunities at better buildings in Midtown,” the broker said.

The average occupancy rate for Class-B office buildings in Downtown Manhattan at midyear was 92%, or 86.6% excluding space available for sublease, according to Grubb & Ellis. Class-B asking rents averaged $38.75/sf. Most landlords have to offer free rent for several months to land tenants.

Asking rents at 110 William Street are $35-$37/sf. One tenant, Valiant Insurance, expanded its space last month to 18,500 sf, from 8,400 sf.

The 32-story building is at John Street, across from Fulton Plaza in the Insurance District submarket. The lower 15 floors were built in 1918, and the rest were added in 1959.

Swig's portfolio, which encompasses 4 million sf of office space and 1.5 million sf of residential space, is under pressure on several fronts. The company has been sued in connection with multiple mortgages, and Swig himself has also been sued over personal loans associated with properties. Last month, RCG Longview Debt Fund 4 won a judgment for $3.9 million on $3.5 million in personal loans made to Swig last year. The judgment included about $400,000 in interest.

In a Sept. 15 affidavit, Swig warned that he might file for personal bankruptcy protection because he couldn't afford to pay a $28 million judgment on a defaulted loan for the Sheffield57 condo project in Manhattan. The foreclosed property was sold in an August auction to Fortress Group of New York for $20 million. Fortress previously acquired more than $100 million of defaulted loans on the property, at 322 West 57th Street.

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