1. 777 Third Avenue
There are still some ad-agency types hanging out here, but not for much
longer. Grey Group, the primary tenant, is moving farther downtown in
December. According to Tenantwise, this will leave the property
almost entirely empty. Mermel doubts the owners, the William Kaufman
Organization and Travelers, will be able to fill the void anytime soon, and
so they may have difficulty servicing a $102 million mortgage stemming from
a 2007 refinancing. Maybe, he adds, it might to wiser to sell. Mermel
thinks they could get $98 million in this market. Jennifer Wislocki, a
Travelers spokeswoman, vigorously disputed his analysis of the building’s
occupancy and its financial performance. She said the owners are talking to
a number of prospective tenants.
2. 11 Times Square
A lot of developers missed the market in Manhattan, but few blew past it
like Steven Pozycki, founder of SJP Properties of Parsippany, New Jersey. In
June 2007, SJP broke ground on a $1.1 billion skyscraper on the corner of
42nd Street and Eighth Avenue. SJP and its partner, Prudential Real Estate
Investors, financed the project with a $660 million mortgage from a banking
consortium led by Pittsburgh’s PNC. Mermel says the owners still
don’t have a single tenant: “This always happens in a boom. These
out-of-towners come in, borrow a ton of money, and get hammered.” Prudential
has acknowledged that the financial performance of 11 Times Square “will not
be what we expected.” SJP declined to comment.
3. 1330 Sixth Avenue
The Macklowe family bought this building in 2006 for $498 million. Otéra
Capital, a Canadian real-estate investor, ended up with the $130 million
mezzanine loan on it. The family defaulted in January, and Otéra used its
position to seize control. “We step in basically to protect our investment,”
Otéra CEO Jean Lamothe said at the time. Mermel says the Canadians
will have a tough time. He argues that the building is worth $202
million—less than the $240 million mortgage on it. The tower is also 30
percent vacant, according to Tenantwise, and he doubts it can be filled at
the kind of rents the Macklowes themselves were once hoping to see. He
predicts the Canadians will sell instead. “This is a zombie building,” he
says. Otéra declined to comment.
(L-R) 545 Madison Avenue; 1414 Sixth Avenue
(Photo: Christopher Griffith )
4. 510 Madison Avenue
The Macklowe family was still in their glory when they started building this
sleek $400 million tower in 2007 at the corner of 53rd Street. Harry’s son,
William “Billy” Macklowe, boasted to the New York Times that it would have a
health club and a twenty-yard swimming pool—even a golf simulator.
Presumably, hedge-fund managers could have used it to hone their swings when
they weren’t counting their profits. They clung to this property after
losing several others. But how much longer can they afford to keep it? In
late August, 510 Madison was still surrounded by a cocoon of scaffolding.
The owners are battling in court with some prospective tenants who are
trying to get out of their leases. Mermel thinks the property is a
“likely foreclosure candidate,” estimating its worth at only $100 million. A
spokesman for the Macklowes downplayed the building’s leasing situation,
saying some tenants were in place.
5. 545 Madison Avenue
Last November, the developer LCOR invited 150 brokers to lunch at this
refurbished seventeen-story building on the corner of 55th Street in the
hopes that they would return with prospective tenants. Some visitors
departed with $500 gift cards to Alfred Dunhill, one of the property’s few
occupants. It looks like LCOR got smoked. LCOR and its partner, BlackRock,
boasted in January 2008 that they had borrowed $61 million to transform this
1955 building into a spiffy new tower with “an environment comparable to a
five-star hotel.” However, Tenantwise says 545 Madison Avenue is
still 88 percent vacant. Mermel believes it is worth a mere $42
million. David Sigman, senior vice-president of LCOR, says LCOR and
BlackRock haven’t missed any loan payments and have actually put more of
their own money into the building.
6. 1414 Sixth Avenue
In May, Norman Sturner, CEO of Murray Hill Properties, told the New York
Post he had struck a deal with Ian Schrager to convert this dowdy building
at the corner of 58th Street into a “six-star” hotel. Sturner said almost
all the leases at 1414 could expire next year and then Schrager could “do
his magic.” But first, Sturner may have to perform a miracle himself. He and
his partner, David Werner, purchased the building in 2007 for $120 million.
Mermel says its current value is closer to $57 million—and that the partners
financed the acquisition with a $65 million securitized loan due next May.
Even if Werner and Sturner succeed at refinancing, Mermel doubts they could
raise money with Schrager to convert the building to a superluxury
hotel—given that the hotel industry is hurting, too. And as the Post noted,
there is no such thing as a six-star hotel. Neither Sturner nor Schrager
7. 229 West 43rd Street
The New York Times Company arguably made one of the worst real-estate deals
in recent New York history when it sold the paper’s old headquarters to
Tishman Speyer in 2004 for $175 million. Tishman flipped it three years
later for $525 million to Israeli billionaire Lev Leviev’s Africa Israel
USA. However, that deal may be an even bigger debacle. Leviev’s company
financed it with $711 million in debt. After a $150 million renovation, 299
West 43rd is 96 percent vacant, according to Tenantwise. Plus, one of Africa
Israel’s mezzanine lenders has sued, accusing it of triggering a technical
default to escape some debt. Meanwhile, guess who snapped up the first
mortgage? Carlos Slim Helú’s Banco Inbursa. (Slim, of course, is the guy who
lent the Times $250 million this year, at a staggering 14 percent interest
rate.) Africa Israel didn’t return calls. Slim’s organization wouldn’t
8. 142 West 57th Street
David W. Levinson, chairman of L&L Holding, was once one of the city’s top
commercial-real-estate brokers, with clients like Bear Stearns and News
Corp. During the boom, he and his partner, Robert Lapidus, became aggressive
buyers of office buildings. Now they too are vultures. But they have some
distress in their own portfolio. Mermel says L&L and BlackRock face a
November repayment deadline for $81 million in securitized debt on this
black tower near Seventh Avenue that they bought for $170 million in 2006.
Levinson admits that L&L Holding has some troubled properties. But this, he
says, isn’t one of them. He adds that his firm has an extension on the loan
and that he is signing leases for the property left and right. He even
invited Mermel to come pay a visit. “David is a creative guy,” Mermel
concedes. But he’s still keeping his eye on this place.
9. 660 Madison Avenue
Mermel has his sights on the tower above Barneys, yet again.
10. 125 West 55th Street
Few people are smarter about real estate than Mort Zuckerman. But even the
chairman of Boston Properties has his missteps. Last year, his company led
an investor group that picked up this tower (and two other buildings) as
part of its $3.95 billion deal to buy the GM Building from Harry Macklowe.
GM was a coup. The other buildings, maybe not so much. The investors paid
$444 million for this one, which Mermel estimates is now worth $264 million.
That’s a problem, because Zuckerman’s company and its partners have
virtually the same amount of debt coming due on the building in March.
Arista Joyner, a Boston Properties spokeswoman, said the company would have
no problem arranging refinancing. Mermel tends to agree. Then again, they
have a similar deadline in July for a $190 million loan on a second building
from the Macklowe sell-off. Joyner declined to comment on that one.
11. 475 Fifth Avenue
Joseph Moinian, a 55-year-old Iranian-born developer, scooped up trophies
like the old Sears Tower in Chicago during the boom. He had big plans for
this building across from the New York Public Library when he bought it in
2007 for $162 million with Westbrook Partners. The new owners emptied the
building—except for the Sean John store—and began renovating. However, in
June, instead of refinancing, Moinian and Westbrook handed the keys to
Barclays, their lender. Barclays has gotten numerous vulture calls. “I went
in and talked to them with a residential developer,” Mermel scoffs. “It’s
only worth $30 million. This place needs a lot of work.” Barclays has hired
L&L Holding to complete the fix-up and bring in tenants. L&L’s David
Levinson said his firm had also negotiated an option to buy the place.
Barclays wouldn’t comment.
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