Owners offload property amid office market turmoil
A New York City office building owned by a Related Cos. affiliate is being sold for a fraction of its purchase price.
Empire Capital Holdings and Namdar Realty Group struck a deal to buy the property at 321 W. 44th St. for less than $50 million, Bloomberg reported, citing sources familiar with the matter. That’s a 67% discount compared to the nearly $153 million paid by Related Fund Management in 2018.
This deal is a "short sale," meaning the seller (Related and its lenders, including Canadian Imperial Bank of Commerce) are accepting less money than what's owed on the mortgage. Sources said the loan balance for the 10-story building in Hell's Kitchen exceeds $100 million.
Short sales have become increasingly common in the office sector as property values have fallen below outstanding loan amounts.
The 220,000-square-foot building is currently occupied by tenants including Battery Studios and ad agency AKA. Brokerage firm CBRE Group handled the sale, but none of the involved parties - Related, Empire, CBRE, Namdar, or CIBC - commented publicly on the transaction.
Office property values across the US have plummeted in recent years. Rising borrowing costs and the shift to remote work have significantly dampened demand. While newer or renovated buildings can still attract tenants at competitive rents, older properties like Related’s building are struggling to fill vacancies.
As more office building owners face looming mortgage maturities and rising costs, they are increasingly being forced to cut their losses through short sales or other distressed transactions.
A handful of recent transactions, including this one, offer a glimpse into how investors are currently valuing office buildings. One example is 1740 Broadway, which Blackstone bought for $605 million in 2014. The private equity firm was eventually forced to write off its investment and agreed to sell the property for roughly $186 million this year – a significant loss.
Empire Capital, known for investing in commercial real estate on behalf of wealthy families, has been actively seeking deals amidst the current market turmoil. The company has recently purchased 1200 Sixth Ave. and a stake in Mercedes House.
In 2022, they partnered with others to acquire 1330 Sixth Ave. from Blackstone and developer RXR at a steep discount. Empire has also partnered with Namdar, having purchased 830 Third Ave. together in 2022.
Despite the challenges in the office sector, Related Cos. remains a major player. The firm was instrumental in developing Hudson Yards, a Manhattan office complex that has attracted big-name tenants like Steve Cohen's Point72 and Facebook's parent company Meta Platforms. Related founder Steve Ross is also bullish on office space in West Palm Beach, Florida, having secured tenants like Goldman Sachs since the pandemic began.
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