The high-profile office tower at 1500 Broadway was presented last October with a bill it couldn’t pay when its $335 million mortgage came due. London-based owner Tamares Group was unable to refinance, and the 500,000 square-foot Times Square tower, home to the studios of “Good Morning America,” defaulted. Tamares didn’t return an email seeking comment.
Office-landlord misery like that at 1500 Broadway got a lot more company in 2024. Fully 15% of a pool of commercial mortgages tracked by KBRA weren’t paid off at maturity last year, a steep increase from 2023’s 6%, according to a report Thursday from the credit-rating agency. About 40% of office loans in the pool weren’t paid off, twice the rate of 2023.
In addition, fewer maturing mortgages were granted extensions, which is how lenders prefer to handle the problem when feasible. Just 10% of expiring commercial loans were granted more time, KBRA said, well below the 22% that got a grace period in 2023 to work things out.
The data show that beneath headlines proclaiming commercial real estate is back, stress is quietly building. Particularly in the office sector, property owners face the daunting task of refinancing loans at higher rates while cash flows and rent rolls sag. Borrowers who can’t refinance or restructure their defaulted loans face losing their properties via foreclosure.
This state of affairs could linger over the sector for years, considering between now and 2029 $3 trillion worth of commercial mortgages come due, according to research firm Trepp. Credit performance “deteriorated further” last month, Federal Reserve officials said in their December meeting, according to minutes released this week.
Lower interest would give borrowers and lenders more breathing room, but the odds of that took at least a short-term hit after the government today reported unexpectedly strong monthly employment data. A robust economy combined with uncomfortably high inflation is no formula for interest rate cuts and the market is starting to believe the Federal Reserve won’t cut again any time soon. That would be particularly bad news for commercial landlords because mortgage rates are tethered to the 10-year bond, whose yield rose Friday to its highest in more than a year, at 4.8%.
“Markets that tried to front-run the Fed on the level of interest rates are now paying the price,” said Jamie Cox, managing partner for Harris Financial Group.
It’s not all gloom. Tishman Speyer today announced it had completed the $2.85 billion refinancing for The Spiral, a 2.8 million square-foot tower in Hudson Yards. That deal came a few months after Tishman refinanced Rockefeller Center’s $3.5 billion mortgage.
“Together, The Spiral and Rockefeller Center demonstrate that premier properties with the right amenities, strong occupancy and established sponsors continue to outperform the market,” Tishman CEO Rob Speyer said.
But for every building that crosses the refi finish line, some fall short.
For instance, the 42-story tower at 150 E. 42nd St. was unable to refinance its $525 million mortgage when the loan came due last September, KBRA said. Although the 1.7 million square-foot stainless steel tower is attractively located across the street from Grand Central Terminal, its vacancy rate is 11%, S&P Global said, and the property hasn’t been renovated since 1998. Its largest tenant, Wells Fargo, has said it would move out of 500,000 square feet by 2028 and head to Hudson Yards.
150 E. 42nd is owned by Mark Karasick and David Werner. Neither could be reached for comment.
