Namdar and Empire Capital in Talks to Hand Back the Keys at 345 Seventh Avenue

The property is “in the process of being returned to the lender,” a lawyer for the building’s owners wrote in a June 17 email to the 32BJ Service Employees International Union, which represents five cleaners at the building. “A specific date has not yet been set.” 

Dan Dilmanian, chief operating officer for Namdar Realty, said in a statement that there’s no formal agreement yet to give the property back, but the firm is “in early-stage talks about the future of 345 Seventh Avenue.”

“We are also willing to work with the lender to find a path forward for retaining ownership,” Dilmanian added.

A spokesperson for Empire did not respond to a request for comment, and Benefit Street declined to comment. 

While the fate of 345 Seventh is up in the air, what’s clear is the joint venture’s plan to renovate the 25-story property and lure more tenants failed and it’s currently facing default on its loan.

Namdar and Empire picked up 345 Seventh for $107 million along with three other smaller buildings on the same block near Pennsylvania Station.

The joint venture secured a $78 million floating-rate mortgage for the property from Benefit Street in 2021, the largest of a collateralized loan obligation (CLO) issued by Benefit Street for 21 properties in New York, Texas, California and Florida. The loan matures in September and Namdar and Empire aren’t expected to secure an extension, according to a report from Morningstar DBRS on the loan. 

Publicly, however, Igal Namdar, who built his fortune buying distressed malls for bargain prices, is still viewing the country’s largest office market through rose-colored glasses.

“The prices of these office buildings have dropped so much that it’s hard to not make money,” Namdar said June 27 on Bloomberg TV. 

Namdar said his company is making loads of money renovating obsolete office buildings and bringing tenants back. And that’s easy since his company has so much liquidity, Namdar told the Bloomberg anchors with a healthy dose of braggadocio.

“We’ve always believed in low debt,” Namdar said. “So we don’t have a lot of debt on our balance sheet. We have a good cash flow, and banks finance us because they know we don’t overleverage.”

But a peak under the hood at 345 Seventh shows just how divorced from reality that is. 

The 190,325-square-foot office building was 59 percent occupied when Namdar and Empire snapped it up in 2021, according to a presale report on the CLO loan by Morningstar DBRS. 

The two firms drew up a business plan to spend $1.3 million on renovations to lease the vacant floors. Instead, occupancy dropped to 43 percent by September 2023, and Morningstar wrote in another report that the firms would “likely need to inject millions” to help bring occupancy higher.

The building’s value is now about equal to the joint venture’s $78 million loan, Morningstar estimated. That loan-to-value ratio will need to come down to about 65 percent for the loan’s sponsors to qualify for an extension in September, but it “is not expected to do so unless leasing momentum increases in earnest,” the analysts concluded.

“It’s a challenging time right now for that property type,” said Morningstar’s Gwen Roush, who helped write the reports. “Some of the ‘bulletproof’ markets — San Francisco, Washington, D.C., and some of the markets in New York — are seeing stress that previously was not seen.”

Dilmanian, for his part, agreed that owners are facing a difficult refinancing environment, but he said in a statement, “Our interest in the Manhattan market remains strong.”

Indeed, the firm seems to have plenty of appetite for the asset class.

Namdar and Empire bought 830 Third Avenue in 2022 for $72 million and followed up that with a $105 million deal to buy 529 Fifth Avenue in 2023. Earlier this month, Namdar and Empire Capital entered a contract to buy 321 West 44th Street from Related Companies for less than $50 million, a $103 million loss for Related, as CO reported.

Dilmanian blamed city zoning laws for preventing Namdar from pursuing a residential conversion of 345 Seventh — an option Morningstar’s analysts were not aware of — and also pointed to the negative impact of the migrant intake shelter the city opened a block north at the Stewart Hotel in 2022.

“Properties are now changing hands for a third of the cost per square foot compared to three years ago when Namdar Realty Group purchased 345 Seventh Avenue,” Dilmanian said. “Many owners, Namdar included, are investing heavily in building improvements across their portfolios while appraisal valuations move in the other direction.”

It’s a rude awakening for Igal Namdar, who made a name for himself by buying shopping malls on death’s door and making a tidy profit. To do that, Namdar cut costs to the bone, shelling out a mere 20 to 50 cents per square foot to maintain them, lower than the 60 cents per square foot the average mall owners spend, Reuters reported. Namdar’s plan ultimately yielded cap rates in the mid-teens for the properties.

Namdar tried to bring similar cost-cutting strategies to its Manhattan office assets, but that has raised the ire of the powerful union 32BJ, which represents some 20,000 commercial building cleaners in New York City

Denis Johnston, the union’s executive vice president, began keeping a leery eye on Namdar and Empire after they terminated their contract with longtime property management firm American Building Maintenance at 529 Fifth and brought on the nonunion contractor L&J Commercial & Residential Services, according to the union.

Earlier this month, Johnston said L&J cut workers’ wages nearly in half at 529 Fifth. 

“This is having a devastating impact on these workers, who are homeowners and have families and have bills to pay,” Johnston said. “This is a building owner that thinks the better course is to pay poverty wages.”

Now the union is bracing for the same thing to happen at 345 Seventh, where Namdar and Empire opted not to participate in the larger contract negotiations that landlord group the Realty Advisory Board finalized in December. Unlike the vast majority of office owners, Namdar chose to handle the labor negotiations themselves.

“Namdar and Empire Capital are one of the few owners that are actually wading into this right now,” Johnston said. “They’re looking at valuations and they’re seeing what they think are opportunities.”

That could drag out for some time, since the owners claim they can’t sign a new labor contract while they’re in the process of walking away from the building, according to the email from Namdar’s lawyer sent to 32BJ.

Abigail Nehring can be reached at anehring@commercialobserver.com.