UBS Sells NYC Office Tower Via Online Auction For 97.5% Loss
Earlier this summer, Swiss bank UBS’ real estate investment arm opted to auction off a Midtown Manhattan office rather than go through the effort of finding a buyer.
Wednesday, the building at 135 W. 50th St. found its buyer — the sole, undisclosed bidder in the auction, which scored the property for an eye-watering discount, The New York Times reported.
In 2006, UBS Realty Investors bought the 920K SF building for $332M. The bidder spent just $8.5M to scoop it up, a 97.5% haircut from the previous price.
“What’s shocking is how fast the valuations dropped now that we’ve seemingly reached bottom, or close to it,” David Sturner, whose family’s firm sold the building to UBS, told the Times.
But the property comes to its new owner with troubles. Built in the 1960s, it is now just 35% occupied, according to The Times. It also is subject to a ground lease after UBS sold the land under the building to ground lease REIT Safehold.
UBS spent $279M to buy the land in 2012 from its previous owner, but in 2019 it sold it to Safehold for $285M, according to property records. The ground lease is worth $221M, according to the agreement.
The building would be difficult to convert into residential, with 10-foot ceilings that are too short, columns that are randomly placed and a location in the middle of the block, blocking light, Sturner told the Times.
Sales for office buildings have surged in recent months, surpassing the billion-dollar mark between April and June. However, many are expected to be turned into residential conversions.
Office leasing has also jumped, but the vast majority of deals are for space in new construction or highly amenitized buildings near transportation hubs, which 135 W. 50th St. is not.
Meanwhile, millions of square feet of office space throughout the city is likely to depreciate as tenants move to new buildings or consolidate and loans mature.
Distressed office property valuations have fallen by over 50% on average from their original valuations at loan issuance, according to a Fitch Ratings analysis of U.S. CMBS office loans in special servicing.
Fitch projects the CMBS office delinquency rate to nearly triple from 3.6% as of February to 9.9% in 2025, surpassing the post-Global Financial Crisis peak.
In the second quarter, commercial foreclosures occurred at the highest rate since 2015. At the same time, $94B of commercial real estate debt is in distress, with another $201B at risk.
