CIM Group, Australian Fund To Hand 1440 Broadway Back To Lender
CIM Group and Australian pension fund QSuper appear on the verge of handing over the keys to a Midtown Manhattan office building where WeWork is the largest tenant.
The investors took out a $399M single-asset, single-borrower CMBS loan in 2021 to refinance the 25-story, 740K SF office building at 1440 Broadway. The loan has been transferred to a special servicer, which wrote in commentary this month that the "borrower will be deeding the property back to the Lender," according to the Morningstar Credit database.
CIM acquired the office tower on the corner of Broadway and 41st Street with QSuper in 2017. The Real Deal first reported the possible deed transfer.
A spokesperson for Los Angeles-based CIM Group told Bisnow in a statement that the transfer to special servicing happened “as part of the negotiation.”
“Due to the CMBS structure, there is no single lender to negotiate with and the loan must first be transferred to special servicing in order to enter into any negotiations,” the spokesperson said.
“The special servicer comments are not encouraging,” a Trepp email alert this week reported.
The floating-rate debt securitized by JPMorgan Chase Bank was originated two years ago when the property was valued at $540M, per the Morningstar Credit database.
But within three months of the refinancing deal and long before the Federal Reserve began yanking up interest rates last March, the loan was placed on a watchlist. The debt is due to mature in May 2024.
By the end of 2022, the property’s debt service coverage ratio was 0.77%. By the end of Q1 this year, that had dropped to 0.75%, per Morningstar data. Occupancy was 91% at the end of March, according to Trepp, but a large portion of its space is tied to a troubled tenant.
WeWork, which signed for 236K SF in 2018, had leased 40.5% of the property when the loan was securitized, Trepp said the coworking operator is no longer listed as a tenant, but a WeWork spokesperson said the company is still a tenant at the building, and a change in ownership wouldn't affect that.
Although 210K SF of WeWork’s space at 1440 Broadway is subleased to e-commerce giant Amazon, the property’s exposure to WeWork was sufficient for ratings agency DBRS Morningstar to flag it as a concern.
The coworking firm told investors it is renegotiating almost all of its leases as it seeks to avoid bankruptcy. It skipped an interest payment last month, indicating that its options for solvency are dwindling.
CIM Group is far from the only office landlord to look at handing the keys back. RXR defaulted on a loan at 61 Broadway earlier this year and last month entered into a deed-in-lieu-of-foreclosure agreement with its lender. Blackstone handed back the keys at 1740 Broadway last year.
“If you want to put new money in, you need to reset the deck to do so,” RXR CEO Scott Rechler told the Financial Times in February. “And if we can’t, we may have to hand back the keys.”
UPDATE, OCT. 18, 6 P.M. ET: A WeWork spokesperson said the firm is still a tenant at 1440 Broadway. This story has been updated.
CORRECTION, OCT. 19, 4:15 P.M. ET: A previous version of this article misstated RXR’s current ownership situation at 61 Broadway. This article has been updated.
