12/15/2010

Syndicate to Shop Defaulted NY Office Loan

A German bank syndicate is about to market a $116 million defaulted loan on the office building at 1140 Avenue of the Americas in Midtown Manhattan.

The offering is likely to draw heavy interest from investors interested in taking control of the 230,000-square-foot property. The syndicate, led by Landesbank Baden-Wurttemberg, is expected to begin the marketing campaign as soon as this week via Holliday Fenoglio Fowler. A bidding deadline will be set for next month.

A partnership between fund shop Rockpoint Group of Boston and Stellar Management of New York acquired the leasehold interest in the building in 2006 from SL Green for $97.5 million, or $424/sf. The Rockpoint team lined up a $128.9 million debt package from Lehman Brothers, including $45.4 million of future funding for a renovation. Lehman quickly transferred the $116 million senior portion to the LBBW syndicate and sold the $12.9 million mezzanine piece separately. The current offering includes only the senior mortgage.

Rockpoint, acting via its $1.7 billion Rockpoint Real Estate Fund 2, and Stellar intended to upgrade the Class-B building to Class-A status. Plans included a glass exterior, a renovated lobby and upgraded building systems.

But last year Stellar, led by principal Lawrence Gluck, filed suit against the LBBW syndicate, alleging it had improperly withheld funding for the renovation after only $17.2 million was supplied. Stellar argued it couldn't complete the renovation without the additional proceeds. The status of the lawsuit is unclear, although media reports suggested Gluck was in negotiations at one point to settle the issue.

The occupancy rate was 94% when the Rockpoint team bought the building, but there were several maturing leases. One market player said it is currently roughly 70% occupied, including leases with imminent expirations.

The 22-story building is on the northeast corner of Sixth Avenue and West 44th Street. It was built in 1926. SL Green, a New York REIT, bought the property in 1997 from local player Murray Hill Properties for $21.3 million. The ground beneath the building is leased from the Estate of Sol Goldman through 2016, with a 50-year extension option.

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