Finance  ·  CMBS

Shorenstein’s 1407 Broadway Sees 73% Value Drop From 2019: Trepp

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The office and retail building at 1407 Broadway, just south of Times Square, has experienced a 73 percent plunge in value since its loan was originated, according to a Trepp alert issued Wednesday.

The $350 million commercial mortgage-backed securities (CMBS) loan was originated in November 2019 to borrower Shorenstein Properties, which owns the ground lease, and placed in the BBCMS 2019-BWAY single-asset, single-borrower deal. The 43-story building had an appraised value of $510 million at the time. 

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Trepp reports that the building’s appraised value was lowered to $136 million in June, representing a 73 percent dip. The loan was scheduled to mature in November 2023 and was sent to special servicing last September after it fell 30 days delinquent.

The June valuation dip comes on the heels of Fitch Ratings downgrading the loan and placing it on rating watch negative in April, citing that its loan-to-value (LTV) ratio was 114 percent at the time. Trepp said the 114 percent LTV would imply a $307 million valuation and the updated appraised value “raises questions, in particular about the prospect of another round of downgrades.” 

The floating-rate loan’s debt service coverage ratio fell to 0.75x in 2023 from 2.75 in 2022, according to Trepp. Its office occupancy level is now 81.38 percent compared with 84 percent two years ago, the Trepp report shows.

Keycorp Real Estate Capital Markets is master servicer for the loan and Mount Street is special servicer, according to CRED iQ.

Trepp noted that Shorenstein was provided by the special servicer with a pre-negotiation agreement (PNA) executed during the 2023 fourth quarter with the borrower later proposing a loan modification that has not yet been finalized. Negotiations for a loan modification occurred early this year concurrent with a foreclosure action filed against Shorenstein on March 15, 2024, according to Trepp. 

A June special servicer commentary said that the modification “could result in a materially higher recovery than the updated as-is value,” according to Trepp, by providing Shorenstein more time to facilitate a longer extension on its ground lease, which could boost “the refinancing potential at an extended maturity date.”

Barclays (BCS) supplied $350 million of CMBS debt for the loan in late 2019 for Shorenstein to refinance its leasehold interest on the property, which it acquired in 2015. The loan retired around $270 million in previous debt originated by Bank of America in 2015 to fund Shorenstein’s  2015 ground lease acquisition of the property. 

The 1407 Broadway site features a 76-year-old ground lease that runs through Dec. 31, 2030, with one remaining 18-year renewal option that would extend it through December 2048, according to Trepp. The currenrt ground lease payments are $414,000 yearly with a scheduled increase to $450,000 annually for the remainder of the renewal option period commencing in January 2031, Trepp said. 

The 1950-built property is currently leased to 119 office and nine retail tenants. Comcast is the anchor office tenant with a 104,048-square-foot lease that encompasses 9 percent of the total net rentable area with a remaining lease term of five years, according to Trepp.  

Shorenstein did not immediately respond to a request for comment. 

Andrew Coen can be reached at acoen@commercialobserver.com