The plot has officially thickened at Sitt Asset Management‘s embattled 2 Herald Square. SL Green Realty Corp. has purchased $250 million in debt on the Garment District property, according to sources close to the deal who asked not to be identified.
The property’s CMBS loan matured in April, after receiving one extension, and Sitt Asset Management had been searching for refinancing, according to reports. Two weeks ago, Real Estate Alert added 2 Herald Square to its list of buildings on the market, with an asking price of $350 million.
The $200 million securitized loan on the property, which is part of the CMBS transaction WBCMT 2007-C32, was put in the care of special servicer CWCapital in March, according to Trepp. The loan had been extended for six months after its ten-year term expired, according to previous reporting from The Real Deal. Trepp lists the interest rate as 5.92 percent.
A $50 million B-piece originated by DekaBank was also purchased by SL Green, a source said.
A representative for CWCapital did not immediately respond to a request for comment. SL Green declined to comment. A representative for DekaBank said the transaction could not be verified due to the time difference with Germany.
Stephen Meister, who represents Ralph and David Sitt, said “Ralph enjoys an excellent relationship with SL Green and looks forward to resolving the matter.”
The matter is a bit thorny, however. Eddie Sitt sued his brothers Ralph and David in New York Supreme Court last May, according to public documents, alleging that they were “looting tens of millions of dollars from the Sitt family’s real estate business.” A call to the law firm representing Eddie Sitt, Morrison Cohen LLP, was not immediately returned.
Now, the approximately 350,000-square-foot asset, which has reportedly been mired in litigation not just among family members but also from other investors in the building, will have a new chapter—but who will take title and when is unclear. The building needed cash to execute its new lease with WeWork, the start-up office space behemoth that wants to take over the world, according to TRD. The magazine said the property had been losing approximately $1.7 million per month.
Sitt Asset Management owns a controlling interest in the leasehold for the office and retail at the 11-story building. Sitt purchased its stake for $275 million in 2007, according to a filing with the U.S. Securities and Exchange Commission.
Occupancy at 2 Herald Square is currently 81 percent, according to Trepp, and it has lost tenants in the last year, with ad firm Publicis and H&M ditching their digs there.
Until 2014, SL Green owned the building’s fee interest, which it sold to retirement fund TIAA-CREF for $365 million in July of that year.
SL Green Chief Executive Officer Marc Holliday commented on an earnings call at the time that Sitt has an option to buy the fee position in 2027, and SL Green expected the company to exercise it. That seems less likely, now.
Update: This story has been modified to include the information about the B-piece purchase.