GFP Defaults On $103M Loan Backing Midtown Office Building

GFP Real Estate has defaulted on a $103M loan it owes on a Midtown East office tower, according to a Fitch Ratings report.

The Gural family-owned landlord failed to pay off the CMBS loan on the art deco DuMont Building by its maturity last month after it had been transferred to special servicing in November, the rating agency wrote when it downgraded its outlook on the loan. 

The special servicer is negotiating an extension with GFP, but if a deal can't be reached, GFP could hand over the keys to the building at 515 Madison Ave. on the corner of 53rd Street, Crain's New York Business reports. 

The 324K SF DuMont Building has struggled to retain tenants, Crain’s reported. It was 83.8% occupied in December, and its largest tenant is flexible office space provider Jay Suites, which has a lease for 14% of the building. Its next largest tenant — Memorial Sloan Kettering, taking up 7% of the building — is set to vacate when it expires in June this year, leaving the building 75% occupied.

GFP moved its headquarters to 13K SF at the building in 2021, Commercial Observer reported. The company didn't immediately respond to Bisnow's request for comment.

Fitch wrote in its report that its "base case loss expectation" on the property's loan was 22% with an estimated cap rate of 9.5%. The building's net operating income dropped by 35% between year-end 2020 and year-end 2021. 

Owners of aging Midtown office buildings have also faced difficulty retaining tenants over the past year as businesses seek new space and look to consolidate. That places increased pressure on owners, with $16B of commercial mortgage-backed securities for Manhattan office buildings set to mature this year, a 30% jump from 2022, according to Trepp. 

Some of New York City’s largest office landlords are reconsidering building uses and valuations as a result. Vornado Realty Trust said last week it expects to write down $600M in value off its portfolio, the vast majority of which would be concentrated in retail and office assets in Times Square and Fifth Avenue.

Meanwhile, owners including Hines and RXR Realty are evaluating their portfolios to see where office-to-residential conversions or handing back the keys are feasible as lenders warn borrowers to urgently prioritize negotiating refinances.