Update on Alexander’s 731 Lexington Loan and Bloomberg’s Lease Situation
A recent disclosure by Morningstar Credit has brought to light significant developments regarding the $500 million commercial mortgage-backed securities (CMBS) loan associated with 731 Lexington, a property owned by Alexander’s, partly owned by Vornado Realty Trust.
Loan Status
The CMBS loan has transferred into special servicing. This indicates financial distress, as the special servicer has rejected Alexander’s proposal to pay down $25 million of the debt in exchange for a four-year extension, with the loan due next month.
As per the servicer’s commentary, a crucial factor in this decision stems from the inability to refinance the debt in light of the prevailing capital markets conditions, particularly for an office loan of this magnitude.
Future Implications
Despite the loan entering special servicing, Morningstar notes that this does not preclude the possibility of an extension agreement. The servicer mentioned that it views this matter as a workout strategy projected to reach resolution by September 2024.
Background on the Loan Terms
Initially secured in 2017, the loan has undergone a series of extensions, with the interest rate increasing from 1.4% to 6.2% over the past two years, according to KBRA data. Roth, CEO of both Vornado and Alexander’s, recently commented during Vornado’s earnings call regarding the challenges of refinancing, expressing concerns over the high current market rates, which stand at approximately 7% or 8%.
“We’re in the process of refinancing this asset, but I must say I am not excited about paying today’s market rate of 7% or even 8% for debt,” Roth stated, highlighting the protective measures that lenders require nowadays.
Roth suggested that his preferred approach might be to pay down or even eliminate the debt, indicating flexibility in strategy as they assess the situation.
Bloomberg’s Lease Dynamics
Roth further acknowledged that the competition for Bloomberg’s headquarters among landlords is intense. The original lease for Bloomberg at 731 Lexington is set to expire in 2029, with the contractual net rent being subject to appraisal adjustments based on market conditions closer to the expiration date.
“As you can imagine, every developer in town tried to poach Bloomberg, and of course they looked at every opportunity, as they must,” Roth commented on the competitive landscape surrounding the lease.
With these developing circumstances, stakeholders will be keenly observing how the situation progresses, particularly the future leasing arrangements with Bloomberg and the financial strategies employed by Alexander’s and Vornado.