Bargains in the Plaza District are few and far in between, but SL Green landed a big one when it paid about 50 cents on the dollar to retire the mortgage at 690 Madison Ave., a building that houses jeweler Van Cleef & Arpels.
It isn’t clear why the lender agreed to accept just $32 million to settle the $61 million loan. The lender shown in city records, Bank of China, had no immediate comment. 690 Madison is an 8,000 square-foot property at the corner of East 62nd Street and leased to a division of Swiss luxury giant Richemont, which also owns Cartier.
The benefits of the transaction, revealed as part of the company’s fourth-quarter earnings report late Wednesday, were clear for SL Green. The shares fell about 1% in midday trading.
By paying off the mortgages at 690 Madison and three other Manhattan properties for less than owed, the developer generated more than $200 million in gains last year, it disclosed yesterday.
Debt-extinguishment gains accounted for nearly 40% of SL Green’s $570 million in funds from operations, a key performance metric for real estate owners.
“They take advantage of dislocations in the market and have done so for years,” said Alexander Goldfarb, an analyst at Piper Sandler. “It is a core part of their business.”
In addition to gains from paying off debt at a discount, the city’s largest office landlord reported a strong quarter on the leasing front. IBM agreed to take another floor at 1 Madison Ave. and the newly redeveloped tower is now 72% leased. Management said 875,000 square feet worth of leases are close to being finalized. SL Green’s 30 million square feet of Manhattan property is now 92.5% leased, up from 90.1% in the previous quarter.
Evercore ISI analyst Steve Sakwa deemed leasing activity “excellent” and BMO Capital Markets analyst John Kim said SL Green produced a “banner 2024.” He noted the firm’s debt load, nearly 11 times higher than operating earnings, is higher than peers.
SL Green has bought and sold dozens of buildings over the last 45 years. It acquired 100% of 690 Madison in 2021 for $74 million after filing a foreclosure action against former owner Ben Ashkenazy. It sold a 50% stake in the property to Jeff Sutton’s Wharton Properties for $34 million last month, around the time it paid off the mortgage at a hefty markdown. The payoff produced a $26 million gain, SL Green said.
Early last year SL Green paid just $7 million to pay off the $183 million mortgage for a mostly empty commercial building at 2 Herald Square. As part of the $1 billion refinancing of 280 Park Ave., it paid off $125 million in mezzanine debt for $62 million. And it repaid the $50 million mortgage on 719 Seventh Ave. for $32 million.
It’s never easy to persuade lenders to swallow losses. But the alternative would have been for banks to manage the properties themselves.
“New York real estate is a WWE steel-cage match every day,” Goldfarb said.
