Blackstone is desperately trying to shift Manhattan office tower at HALF price after 26-storey building’s value tumbled from $605MILLION to $150MILLION
By Dominic Yeatman For Dailymail.Com
22:37 17 Jan 2024, updated 22:43 17 Jan 2024
- World’s biggest private equity fund takes a $450million hit on prestigious New York landmark amid a collapse in the commercial property market
- Comes as landlords across the country write down their portfolios in the wake of high interest rates and an exodus of office workers
- The price of office space has fallen 35 percent since 2022 leaving US banks vulnerable to billions of dollars in shaky loans
The world’s biggest private equity fund has become the latest victim of America’s hollowed out office culture after it marketed its landmark New York building for a quarter of what it paid.
Blackstone paid around $600 million for the 26-storey tower at 1740 Broadway in 2014 but is now offering it to anyone willing to pay the $150million left on the mortgage.
It comes just a week after Shorenstein put the 62-storey Aon Center in Los Angeles on the market for $153.5 million, down from the $269 million it paid ten years ago.
Persistent high mortgage rates and the millions of Americans still working from home have been blamed for the collapse in prices and an office vacancy rate reaching a record 19.6 percent in major cities earlier this month.
‘I think this is an existential moment,’ said RXR real estate boss Scott Rechler.
‘This post-COVID world of higher interest rates, the changing nature of how people work and live, we’re not going back to where we were, and it’s going to be turbulent.’
The collapse has been pronounced in the biggest cities with DC facing a 21.1 percent vacancy rate and San Francisco’s 34 percent.
It has led to a 35 percent fall in office prices from their peak in early 2022 and left banks vulnerable to billions of dollars in shaky loans.
About $117 billion worth is expected to be due this year and needs to be repaid or refinanced, according to the Mortgage Bankers Association.
Economists last month found 40 per cent of office loans on bank balance sheets were underwater – owing more than the property is worth.
Smaller regional banks who loaned the money to buy them could themselves be at risk if the loans default as they are not big enough to handle the losses.
Blackstone bought the 600,000-square-foot property between 55th and 56th streets from real-estate investment trust Vornado with a $308million mortgage and began a major re-fit of the historic building.
It stopped paying the mortgage in March 2022 and occupancy had fallen to an eye-watering 7.4 percent by September of last year.
‘How could one of the world’s biggest landlords quit on a relatively modest $308 million loan, after they spent a fortune on modernizing the building with a new lobby and restaurant?’ an insider demanded.
And it is landmark buildings such as Blackstone’s 73-year-old money pit that are at particular risk.
‘The bulk of the vacant space are buildings that were built in the 1950s, ’60s, ’70s and ’80s,’ CBRE chief Mary Ann Tighe told the Wall Street Journal.
But San Francisco is in even deeper trouble with a record level of vacancies and accounting giant KPMG announcing its departure from its $400million headquarters earlier today.
The city had the country’s third-lowest office vacancy rate in 1991 but businesses and residents have fled since the pandemic with groups blaming crime, homelessness and work-from-home keeping people from downtown.
Nearly 100 retailers in downtown San Francisco have closed since the start of the pandemic, a decline of more than 50 percent, according to a recent report.
And smaller properties are also feeling the pinch with the iconic 12-storey building at 300 W Adams Street in Chicago going on the market last week for just $4million, and 89 percent drop on the $34 million paid for it in 2012.
The downturn is likely to have a sizable impact on the ability of city governments to revitalize their struggling neighborhoods.
‘In the long run, property taxes on those buildings will also fall by 40 percent,’ Columbia Business School, Professor Stijn Van Nieuwerburgh told 60 Minutes.
‘And these commercial property tax revenues are an important component of the budget of local governments, which means less money for police departments, public safety, less money for sanitation, trash collection.
‘And we end up in something that we have called an urban doom loop.’
Blackstone hopes that the knock-down price may attract a developer willing to invest in a residential conversion for the landmark office building.
‘We wrote this property off two years ago, and in the event a buyer is identified, we will work collaboratively to transfer the ownership,’ a spokesperson said.