Finance  ·  Distress

Garment District Building Owned by Eretz Group Heads to Foreclosure

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An early 20th century building has popped off of New York City’s Garment District’s proverbial coat this week after its owner defaulted on its loan. 

Wells Fargo (WFC) is seeking foreclosure on Eretz Group’s office building at 252 West 37th Street, in the interests of CMBS bondholders, The Real Deal reported Wednesday. The 17-story, 140,000-square-foot building has an outstanding debt of $34.5 million, according to TRD, citing Morningstar data.

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The bank’s lawsuit, filed in New York State Supreme Court earlier this week, alleged that Eretz principal Abraham Talassazan failed to pay back its loan, plus interest, when the debt matured in January. The building has meanwhile fallen from full occupancy in 2014 to just 62 percent as of September, per Morningstar. 

In that time, the property’s valuation fell from $75 million in 2014 to $53.5 million, according to Trepp data. The loan had a debt service coverage ratio of 1.46 in 2021, but it fell below 1.0, according to Trepp.

Eretz bought the building in 2007 for $33.7 million, taking out a mortgage at the time for the same amount, according to property records. The company refinanced that loan at the end of 2013 with another $41 million mortgage from Cantor Commercial Real Estate, which Talassazan guaranteed at the time, court filings show

The debt was eventually transferred to special servicing from LNR Partners in October, with a representative of Eretz telling Bisnow at the time that the company wanted to negotiate a loan extension. However, Eretz was unable to secure new financing before the maturity date, according to Morningstar. 

Spokespeople for Wells Fargo, Eretz and LNR did not immediately respond to requests for comment. 

Businesses in the Garment District at one time employed hundreds of thousands of garment workers during the neighborhood’s peak in the 1940s, though it has steadily lost manufacturing jobs ever since and these days employs just 2,800 people.

Its office market has been hit hard by the pandemic, Average asking rents in the neighborhood were around $46 per square foot at the end of last year, lower than five other office submarkets surrounding it, according to a report by The Garment District Alliance

Nick Trombola can be reached at ntrombola@commercialobserver.com.