Blackstone Group’s transfer of a $308 million loan at 1740 Broadway to a special servicer set real estate jaws dropping on Wednesday. ...
Blackstone Group’s transfer of a $308 million loan at 1740 Broadway to a special servicer set real estate jaws dropping on Wednesday.
“How could one of the world’s largest landlords walk away from a relatively modest $308 million loan, after spending a fortune to upgrade the building with a new lobby and restaurant?” thought an observer.
But while some analysts feared that Blackstone’s possible exit from 1740 Broadway presaged future retirements of other owners in the pandemic-ridden office market, insiders insisted it was a one-time case due to a rare mistake by the EQ office division of Blackstone.
Blackstone’s decision to hand over the Art Deco-style tower to a CMBS trust was first reported by the Trade Observer. The move does not necessarily mean that Blackstone will lose ownership. A Blackstone representative said: “We are working diligently to find a solution that is in the best interests of all parties involved, including our investors and our lender.”
A knowledgeable source said of the move: “They overpaid the building by at least $100 million and the terms of the loan left them no leeway to ask for lower rents. End of the story.”
EQ bought the 26-story, 600,000-square-foot tower from Vornado in 2014 for $605 million. Although 1740 was full at the time with tenants paying below-market rents, “That number was bananas – just over $1,000 a square foot for a 1950s building in the 50s that needed a lot of work. “, said the source.
Major overhaul
In the face of expiring leases and planned moves by major office tenants L Brands and law firm Davis+Gilbert, EQ set out to make the former MONY Tower more attractive to modern tenants.
Last summer, EQ executives and brokers proudly showed off the impressive redesign of the Post 1740 lobby, which included a 15,000 square foot private tenants club on the mezzanine. The property’s website describes the building as “the creative hub of the neighborhood.”
Also hoping to spark a culinary buzz, EQ attracted celebrity chef John Fraser’s Iris restaurantwhich has been critically acclaimed and has drawn large crowds since it opened early last year.
But these improvements were not enough to quickly attract new office tenants. “They wanted around $80 per square foot,” said a negotiator. “The numbers didn’t fly in a secondary location and in a market with 20% uptime.”
A Blackstone source called the 1740 case an “isolated situation” that did not reflect the company’s view of the Manhattan office market.
Indeed, Blackstone-owned EQ Office recently closed a 49% stake in One Manhattan West, which it purchased from Brookfield and the Qatar Investment Authority. EQ Office manages 20 million square feet of office space in the United States.
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