A Herald Square tower that was 60% empty a year ago has refinanced its overdue mortgage after landing a new long-term tenant.
1293 Broadway, also known as Herald Center, secured a $300 million loan to replace the $245 million mortgage that matured 12 months ago. Owner JEMB Realty is expected to use the proceeds to renovate the 250,000 square-foot property at West 34th Street to accommodate Yeshiva University, which last summer agreed to lease 160,000 square feet for 32 years.
“This isn’t office space, it’s school space, and there is heavy demand for that,” JEMB President Joseph Jerome said in an interview with Crain’s.
Touro University leased nearly 250,000 square feet three years ago at the Rudin-owned 3 Times Square.
JEMB owns more than 6 million square feet of commercial space, mostly in New York and Montreal, including 75 Broad St., 150 Broadway, 1 Willoughby Square in downtown Brooklyn, and the Herald Towers apartment building at 50 W. 34th St.
1293 Broadway’s refinancing represents a startling turnaround for a building that only six months ago appeared to be in trouble. News of the transaction was first reported by the Real Deal.
Developed in 1902 as a department store, 1293 Broadway hit hard times in 2022 when anchor tenant ASA College, which leased about two-thirds of the space, moved out. The mortgage was sent to special servicing a year ago, an appraiser cut the property’s value in half from $572 million, and credit-rating agency Morningstar DBRS estimated loan investors faced a 15% loss.
Although things looked grim, 1293 Broadway wasn’t in danger of being abandoned like some nearby older buildings thanks to its attractive location. Situated across the street from Macy’s flagship store, the building once housed the country’s busiest Toys R Us store, and H&M is leasing 60,000 square feet through 2041.
“The building has always been a great magnet for retail,” Jerome said.
The property generated $22 million in net cash flow over the 12-month period ending last August, according to credit-rating agency KBRA, or nearly twice the amount needed to cover mortgage payments and other costs. Acquired by JEMB in 1985 for about $30 million, 1293 Broadway remained current on obligations after its mortgage came due early last year and was granted an extension. Lenders were willing to wait because although the building’s value had fallen, it remained higher than its debt.
Even so, 1293 Broadway’s refinancing illustrates the increased level of risk associated with commercial loans. The old mortgage came due in 10 years; the new one is due in three years. The old mortgage carried an interest rate of 4.5%; Jerome said the new loan carries a market rate. That indicates it’s around two percentage points higher.
