Werner, Karasick Default On $525M Loan Tied To Landmark Midtown East Tower
The owners of the landmarked Mobil Building at 150 E. 42nd St. didn't pay off a massive CMBS loan tied to the building when it matured earlier this month.
Real estate investors David Werner and Mark Karasick bought the leasehold for the 42-story, 1.7M SF tower in 2014 for more than $900M. They took out a $700M loan from Morgan Stanley to fund the purchase, broken into a $525M single-asset CMBS loan and a $175M mezzanine loan.
The 10-year, interest-only securitized debt matured Sept. 5 but wasn't refinanced or extended, according to Morningstar Credit’s database. In July, the borrowers said they were working on a loan extension, but the loan's master servicer hadn't received the extension request, according to commentary on Morningstar’s platform.
The newly appointed special servicer, KeyBank Real Estate Capital, said this month that discussions around a possible extension are ongoing.
Karasick, the managing partner at 601W Cos., didn't immediately respond to an email from Bisnow. An executive at David Werner Real Estate Investments, which is known to be quiet about its operations, didn't respond to a LinkedIn message.
When Werner and Karasick bought the building from Hiro Real Estate a decade ago, they extended the ground lease the property is subject to with the Goelet family for 99 years, running through 2113.
The ground rent payments are fixed for the first 15 years, starting at $20M annually and escalating by $2M every five years, according to an S&P Global Ratings analysis from July. The ratings agency projected this year's lease payment to total $24M.
S&P downgraded its rating on 10 tranches of the CMBS debt tied to the building this summer, lowering its rating on the Class-A debt from AAA to A and downgrading several classes of the debt to junk status.
The Class-A office building was 97% occupied in 2022, but that figure dropped to 89% at the end of March, according to the analysis. The property could be headed for more trouble in 2028 when 15 leases totaling 61% of the building’s net rentable area and 75% of its gross rent expire.
The building's biggest tenant, Wells Fargo, has already indicated it plans to vacate before its lease expires in 2028. The building served as the bank's headquarters before it signed a relocation deal at Hudson Yards.
“Our view is that unless the sponsor infuses additional capital to support the property and mitigates the significant rollover risk in 2028, the borrower may face challenges refinancing the loan upon its Sept. 5, 2024, maturity date,” S&P analysts wrote in the July report. “We considered that if the loan transfers to special servicing and the resolution timing is protracted, it may result in reduced liquidity and recovery to the trust.”
The building is named after the Socony–Mobil oil company, which once occupied half of the building. It was designated a landmark in 2003.
This isn't the first nearly billion-dollar office investment that has turned into a headache for Karasick’s 601W Cos.
In November, a 212K SF lease termination by First Republic Bank at the Hudson Yards office building at 410 10th Ave. triggered a cash sweep that sent all funds from the 630K SF building flowing to 601W’s servicer to protect bondholders, Bisnow reported.
601W bought the property in November 2020 for $952.5M, or $1,517 per SF. At the time, Amazon leased half the space, while First Republic occupied about a third, Crain’s New York Business reported.
