Garment District Office Building Hits Special Servicing With Cash Flow Issues
Another older Manhattan office building is staring down a possible default as its debt maturity date approaches with more than a third of the building unoccupied.
The $34.9M mortgage tied to 252 West 37th St. in Manhattan's Garment District has been transferred to a special servicer, according to commentary in the Morningstar Credit database. The transfer happened because of "imminent monetary default due to cash flow issues," according to commentary posted earlier this month.
The roughly 160K SF building is owned by the Eretz Group, which took out a $41M mortgage in 2014 from Cantor Commercial Real Estate, which packaged it into a commercial mortgage-backed security. The debt matures in January, and Eretz Group, run by Abraham Talassazan, is current on its debt payments.
The building's performance has deteriorated since the loan was originated and it was appraised at a $75M value. At origination, occupancy in the building was reported at 100%, but it stood at 60% at the end of 2022, according to Morningstar Credit. The building, which is a century old, has a debt service coverage ratio of 0.88, according to Trepp.
A representative of Eretz Group, who declined to be identified because they were not authorized to speak to the media, said the company put the loan into special servicing because it wants to negotiate an extension. The person added that the building's occupancy is higher than 60% because of recent leases that were signed, but they declined to give specifics.
Eretz Group is one of a number of New York office owners struggling under the weight of high interest rates and soaring office availability as their debts come due. At the beginning of the year, Trepp tracked roughly $16B in CMBS maturities expected to hit NYC this year. Many of those owners have since been able to extend their loans in hopes that interest rates will start declining next year.
Others have been forced to reckon with distress, as defaults and foreclosures have increased. Some owners, like Meadow Partners and Somerset Partners at 300 East 42nd St., have handed back the keys to their buildings, while others, like Chetrit Group at 850 Third Ave., have sold off buildings at huge discounts.
