Ceruzzi’s $233M Debt on 520 Fifth Ave Is in Default and Up for Sale
By Cathy Cunningham and Matt Grossman May 23, 2019 7:08 pm
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Mack Real Estate Credit Strategies is putting the $232.9 million non-performing debt on 520 Fifth Avenue up for sale, according to an offering document shared with Commercial Observer.
Mack provided the loan against the 425,688-square-foot development site to Ceruzzi Properties and SMI USA in June 2017. The developers had planned to build a 76-story mixed-use skyscraper that would have included condominium apartments, a hotel and street-level retail. But the debt fell into default on its maturity date, Dec. 31 2018, and Mack has hired HFF to peddle the debt to the highest bidder, as per an investment memorandum shared with CO.
The debt consists of a $130 million senior mortgage as well as $70 million in mezzanine financing. The mezzanine position provides a new buyer with an opportunity to pursue a Uniform Commercial Code foreclosure as a legal remedy for payment, the memorandum states.
Including unpaid interest, Ceruzzi’s tab on the debt now amounts to $232.9 million, according to HFF’s offering. The floating interest rate at origination was LIBOR plus 7.65, and the addition of a 5 percent default premium means that debt continues to accrue additional interest at a rate of LIBOR plus 12.65 percent.
“After several months of good faith efforts to restructure privately, we are pursuing appropriate actions regarding the several payment and other defaults related to this asset,” a spokesman for Mack Real Estate told CO. “We will continue to protect our investors, in accordance with our obligations, but we remain hopeful that the borrower will promptly fulfill its obligations.”
The loan’s default status presents investors with the option to modify its current terms, including the waiving of the default premium or any fees instead of extending the loan’s term.
The offering provides investors “the unique opportunity to acquire a non-performing loan of scale that is associated with a property poised for future development along Fifth Avenue, and [near] Bryant Park and Grand Central Terminal,” HFF said in its circular. The firm also noted that a buyer of the debt would have direct recourse against “a guarantor with significant holdings and liquidity.”
Ceruzzi and SMI bought the site between West 43rd and West 44th Streets for $275 million in 2015 from Thor Equities. The site is Manhattan’s last piece of undeveloped land along Fifth Avenue between 42nd Street and Central Park South. Under neighborhood zoning rules and including air rights from assigned lots, the site has a total buildable area of more than 350,000 square feet with no tower height limits.
Last year, the development duo was trying to bring on a third equity partner, The Real Deal reported at the time. Thor’s plans for the site had also called for a retail, hotel and residential tower, and the building could offer around 34,000 thousand square feet of storefront space along 85 feet of Fifth Avenue, a block north of the New York Public Library’s main branch on West 42nd Street. The site is now appraised at $337 million, according to HFF, implying that the debt on the building is worth about 70 percent of the site’s value.
Indicative bids are due June 12, with best and final bids due June 19 and an anticipated closing of June 25. HFF’s Brock Cannon, Stephen Van Leer, Andrew Scandalios, Jeffrey Julien, Graham Stephens are leading the sale, the offering memo shows. Officials at HFF did not respond to a request for comment.
One source familiar with the sale said that if a reasonable bid is not received, a UCC foreclosure auction could be next on the agenda.
Officials at Ceruzzi were not immediately available for comment. SMI USA representatives did not return a request for comment.
