The drama surrounding Manhattan’s near-century-old Helmsley Building above Grand Central Terminal is heading to a new chapter with a move to foreclose on the iconic property straddling Park Avenue.
Lenders tied to a $670 million commercial mortgage-backed securities loan on the property, originated by Morgan Stanley in November 2021, on Tuesday filed a foreclosure action against RXR Realty, which owns the landmarked 34-story building at 230 Park Ave. The groundwork to take back the property came after the loan matured in December 2023 and two subsequent forbearance agreements have expired, according to the complaint filed with the New York State Supreme Court in Manhattan.
“RXR continues to have constructive conversations with the lenders,” an RXR spokesperson told CoStar News on Wednesday, declining to comment further.
The loan has a floating interest rate of 7.44%, according to CoStar data.
Besides the $670 million CMBS loan, the building also has $125 million in mezzanine debt owned by Morgan Stanley and Brookfield, according to Crain’s New York, which earlier reported the foreclosure.
Morgan Stanley didn’t immediately respond to a CoStar News request seeking comment. Brookfield declined to comment.
$1.21 billion purchase
RXR bought the building in May 2015 with private-equity giant Blackstone for $1.21 billion, according to CoStar data. But Blackstone has since sold its interest and no longer is involved with the building, RXR previously told CoStar.
As the pandemic-upended office market pummels high-profile properties in New York, the 1.4 million-square-foot tower has seen its value decline nearly 40% to $770 million from $1.3 billion when the CMBS loan was issued in 2021, according to a recent report from bond-rating firm Morningstar Credit.
Morningstar said last month the cash-flow decline at the property is expected to worsen, thanks to some expected tenant move-outs that will lead the building’s occupancy to fall to 68.1% by April 2025 from 81.5%.
Voya Financial, the building’s largest tenant with nearly 140,000 square feet, as well as Clarion Partners, with about 71,000 square feet, will see their respective leases at the building expire in April 2025, among five whose leases will expire in the new year, according to CoStar data.
"The biggest issue with the Helmsley Building is the market — there is less demand for New York office than there was in the past," Sarah Helwig, a vice president at Morningstar, told CoStar News in an email.
"The property isn’t in as dire of a situation as many other office properties, but it is a prewar building so isn’t able to modernize in a way that would compete with newly built trophy office properties, which are getting the lion’s share of demand. The property last underwent a major renovation in 2015," she said.
While new or renovated office properties such as One Vanderbilt have regularly commanded triple-digit rent, rent levels at the Helmsley Building, opened in 1929, are estimated to be between $76 and $93 per square foot, according to CoStar data.
"With sizable near-term expirations expected over the next 12 months and a leasing strategy that has recently favored smaller tenants, it makes sense why this vintage building, which features less flexible office layouts and less natural light compared to more modern towers, is likely to struggle with cash flow in the coming years," said Victor Rodriguez, CoStar Group's senior director of market analytics for New York.
Declining values
The Helmsley Building isn’t the only high-profile building that’s seeing declining values or feeling the burden of the changing market after a string of interest rate hikes since 2022, despite the Federal Reserve’s two recent cuts, seized up financing and hurt properties burdened with variable-rate loans.
Real estate developer RFR, for its part, is locked in a fight for control of the Chrysler Building nearby after the real estate investment firm failed to pay some $21 million in ground lease rent since its last payment in May.
Meanwhile, 1740 Broadway saw its 2023 value slump 71% to $175 million from its original loan appraisal of $605 million in 2014, while 1407 Broadway’s value dropped 73% to $136 million in May from $510 million in 2019, David Putro, senior vice president and sector lead at Morningstar, recently told CoStar News. 1740 Broadway was sold in April for around $186 million, near its recently appraised value, CoStar data shows.
In one bright spot for the Helmsley Building, the new value on 230 Park is “well above” the loan amount, which is “a positive in this environment,” Putro said.
Conversion potential
While Manhattan’s office leasing sees improving signs, and stricter in-office rules from corporate giants such as Amazon bode well for the beleaguered market, industry professionals have said New York’s recovery remains uneven. Even though SL Green’s new trophy tower One Vanderbilt has attracted well-resourced tenants in the so-called flight-to-quality trend, CoStar data shows Manhattan’s office vacancy rate still is near a record high of about 14%.
RXR Chief Executive Scott Rechler has previously said he sees the potential to convert the Helmsley Building into mixed-use with office and residential, but industry professionals have said such projects are costly and full of challenges, including office layouts that usually lack natural light in the middle.
For instance, sales of the $2 billion-plus high-profile office conversion of One Wall Street into luxury condos in lower Manhattan’s Financial District have been disappointing, with only about one-fifth of its units closed since sales began in late 2021, according to the New York Post.
The Helmsley Building was designated a landmark by New York City Landmarks Preservation Commission in 1987. Originally named the New York Central Building, the tower, designed by the same firm behind Grand Central Terminal, later got its current name after real estate developer Harry Helmsley bought the building in the late 1970s, according to the commission’s report. He was said to eventually change the property’s name to his namesake at the bequest of his wife, Leona Helmsley.