12/02/2009

Murray Hill Lining Up Partners for Recaps

Murray Hill Properties is making headway in its effort to recapitalize an overleveraged Manhattan office building, as it continues to seek a partner for another building in the city.

The New York fund shop has lined up a tentative offer from an unidentified investor to inject $42 million of equity into One Park Avenue, market players said. Murray Hill is also trying to raise another $21 million from others. The new investors would take over Blackacre Capital's 90% ownership stake, with Murray Hill retaining its 10% interest and role as operating partner.

Meanwhile, Murray Hill continues to look for an investor willing to kick $38 million of equity into the building at 1412 Broadway. Under the recap, the investor would take over Principal Real Estate Investors' 92.5% stake. Murray Hill would retain the remaining interest.

Murray Hill, which is headed by Norman Sturner and Neil Siderow, is among many New York owners seeking to recapitalize properties acquired at the top of the market. Others include Swig Equities and a George Comfort & Sons partnership. The properties are being squeezed by heavy debt loads and, in some cases, sagging cashflow.

Murray Hill and New York-based Blackacre acquired One Park Avenue in 2007 from an SL Green partnership for $550 million. The deal was financed with a $483 million debt package, including a $375 million senior mortgage that was securitized.

The securitized loan was transferred to special servicer LNR Partners in August because tenant Segal Co. plans at yearend to vacate 158,000 sf, or 17% of the 925,000-sf building, which is now fully occupied. Murray Hill still hasn't found a replacement. One Park Avenue generated $21.1 million of net cashflow last year, less than the $23.9 million needed to cover payments on the senior mortgage. In September, Murray Hill asked LNR to restructure the loan, which matures in 2012.

The two other lead tenants are NYU Langone Medical Center (164,000 sf until 2013) and Coty Beauty (101,000 sf until 2015). The 20-story building, which is between East 32nd and East 33rd Streets, was built in 1925 and renovated three times since 1986. The Murray Hill team undertook the most-recent improvements, to the roof, elevators and mechanical systems.

The proposed recapitalization of 1412 Broadway would value the 414,000-sf building at $140 million. That would be 21% less the $178 million valuation in 2006, when Principal acquired its stake from two local families. The new partner would be asked to put up $20 million of equity immediately, primarily to buy Principal's stake and pay off a mezzanine loan. The partner would commit to fund another $18 million as needed for tenant improvements, debt service and other expenses.

The 24-story building, on the northeast corner of West 39th Street, is generating insufficient cash to cover the payments on its $102 million securitized mortgage, which is on a servicer watch list. The property is projected to produce $4.6 million of net cashflow this year, below the $6 million of debt service.

The building, which is 81% occupied, was constructed in 1927 and last renovated in 2000. The tenants include Jones Apparel (49,000 sf until 2108), One Step Up (41,000 sf until 2014) and Escada (33,000 sf until 2020). At least eight tenants are getting rent abatements. Murray Hill is currently repositioning the top eight floors for use by a single tenant. It is also in the process of upgrading elevators, windows and rest rooms, as well as mechanical and communication systems.

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