Ordinarily it isn’t news when a borrower pays what it owes. But in January Manhattan-based developer Moinian Group put out a press release to announce that it had fully repaid debt holders $630 million raised on the Tel Aviv Stock Exchange.
“The repayment of these bonds reflects our strength as one of New York’s largest and most trusted landowners,” said CEO Joseph Moinian.
He had reason to be proud. These days office-tower owners fail more often than not to pay off mortgages when they come due. Yet even Moinian, which owns more than 20 million square feet of space, is having trouble meeting all of its commitments.
Last month Moinian failed to pay off the mortgage when it matured for two office buildings at 535 and 545 Fifth Ave. The $310 million loan was transferred to special servicing, credit-rating agency KBRA said in a new report. KBRA said the mortgage for the two buildings was sent to special servicing “to facilitate negotiation of final terms of an extension and forbearance.”
A spokesman for Moinian said the firm expects to refinance the Fifth Avenue loan in the near future.
In February the $175 million mortgage for the Moinian-owned Hilton Garden Inn on West 54th Street was also sent to special servicing, which is where troubled loans get worked out, because it faced imminent default.
Moinian’s 535 Fifth is a 36-story, 330,000 square-foot tower developed in 1927, and 545 Fifth is a 14-story, 180,000 square-foot building built in 1898. The buildings were 93% occupied as of last summer, KBRA said, but leases are scheduled to expire this year for tenants that collectively pay about 20% of base rent. Large tenants include an NBA store and Penton Learning Systems. The mortgage for 535 and 545 Fifth that came due last month was originated 10 years ago by Morgan Stanley at a 3.9% interest rate.
Moinian’s difficulties aren’t unusual. Just about every major New York developer has distressed properties, lenders say. Morgan Stanley says that over the last 12 months just 33% of “urban office” loans have been paid off at maturity, underscoring the difficulties landlords have in securing new loans to replace expiring ones.
Moody’s Analytics examined a $19 billion pool of office loans maturing this year and determined $13 billion worth could have difficulty refinancing.
“High interest rates continued to prevent borrowers from refinancing their loans and now could be preventing them from securing extensions,” Moody’s Analytics said.
Some Manhattan office towers are thriving, especially newer ones with lots of column-free space. But vacancy rates crept up to 23.3% in the fourth quarter from 22.8% a year earlier, Cushman & Wakefield data show, as the slow leak of tenants continues from older buildings.
Lenders have a couple of options when a developer fails to pay off a loan at maturity. They can kick the can and hope for better times, or they can kick off foreclosure proceedings. Lenders seem inclined to pursue the first option with Moinian’s properties on Fifth Avenue.
