Everyone makes mistakes. Even Blackstone.
Back in 2014, Blackstone's EQ Office purchased a building that could be a poster child for the office apocalypse...
STRUGGLING MARKET:
Manhattan with its 45% physical office occupancy
OLD VINTAGE:
Built in 1950
OBSOLESCENCE:
Lack of amenities, low clear, small plates
SO SO LOCATION:
Mid-block, 2 blocks from Central Park and Columbus Circle
HIGH BASIS:
EQ Office bought the building from Vornado for about $1,000/SF, a big number for an A-/B building.
VALUE-ADD BUSINESS PLAN:
EQ Office renovated the asset by improving the lobby and adding amenities, but tenants vacated, $80/SF+ rents never materialized, and now the building is almost entirely vacant.
HIGH LTV:
At origination, the loan was only 50% of the purchase price, but an updated appraisal implies a 71% decline in value (nearly 200% LTV) and a major loss forthcoming for lenders.
LOW DSCR:
The current loan had a 3.84% interest rate. This property would struggle to find financing today, but it would almost certainly be at least 10% and well below the outstanding loan amount.
----- Update -----
EQ Office and Blackstone are done with this property, which is now in the hands of a new special servicer. With very little income and pending losses, 1740 Broadway will likely provide an early read on where obsolete office assets trade in a market void of capital.
Do you think this asset is worth more or less than the recent appraisal?
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