Bloomberg Audio Studios, podcasts, Radio news. Joe, do you know that song money Money?
I remember it money?
Yeah, yeah, Okay, I didn't know this. Apparently it was inspired by a building here in New York.
Really, I didn't know that at all.
Yeah, I don't know.
I'm going to.
Wikipedia why we would actually know this. But apparently there used to be a sign that said money but m O and why on top of this building at seventeen forty Broadway, and the m O and Y money was supposed to be Mutual of New York, I guess, and then it got like compressed, and then it was on top of this building for a really long time. And then I guess the band what were they called?
I'm looking on Wikipedia. Is this the one Tonysdell?
Yes?
Yeah, there it is.
Tommy James and the Schondell's. So they were like staying around that area looking for in spiration for a song and they saw the sign and they were like, that's it.
And they got a hit out of it.
Oh yeah, here it is atop the Mutual New York building in Manhattan.
I did a deadlift one.
Okay, uh barges.
This isn't After School Special except.
I've decided I'm going to base my entire personality going forward on campaigning for a strategic pork reserve in the US.
Where's the best with imposta?
These are the important question? Is that robots taking over the world.
No, I think that like in a couple of years, the AI will do a really good job of making the odd launch podcast. And people say, I don't really need to listen to Joe and Tracy anymore.
We do haveing perfect.
Welcome to lots more. Will we catch up with friends about what's going on right now.
Because even when Odd Lots is over, there's always lots more.
And we really do have the perfect guest.
You might have heard then we are speaking with Hitten some Tani, the founder of ten thirty one Media, which is a newsletter focusing on real estate and hit ten has been on the show before, but we had to bring you back on because there's a lot going on in office buildings in New York, it seems, and particularly on One Street on Broadway.
Yeah, it's been quite the carnage season for a bit, but I think what happened with reference to this building is even more alarming because wait, just to be.
Clear, just to be clear, when you say this building, we are talking about the mutual of New York building.
Seventeen forty Broadway, the Money Build.
Keep going, tell me about seventeen forty Broadway.
So seventeen forty Broadway was your prototypical class A office building, sort of tower of power, Manhattan credit tenants, that whole jazz. And what's happened just last week for this month was that the Triple A transholders. So basically, the people who hold what is considered the safest part of the CMBs stash lost a big chunk of money when this building's debt was sold. So that doesn't happen very often. In fact,
the last time it happened was the GFC. So now people are looking at this and saying, okay, so if Triple A bondholders aren't safe, then god, how how bad is this thing? Because we've talked about CI distressed for about a year and a half now this one is particularly alarming.
The Money building stopped making money. I guess sorry, you knew that was coming eventually, But okay. The one saving grace in this seems to be that this particular CMBs deal commercial mortgage backed security, it was a single property deal, right, So the risk was trenched up, so you had that AAA slice the triple A bit, but there was only one property, so you didn't necessarily have the diversification benefits that you would see in a normal CMBs conduit type deal.
Correct. And this is something that people have been asking, is is there any point where it's justified to give a single asset transaction like this at triple A rating? Because yes, it is a diverse group of what you would call credit worthy tenants. But as we've seen with this building and another that we're going to talk about, things can go wrong pretty quickly. So is it as
diversified as it should be? Probably not, because if you're comparing it with like a pool of residential securities, you'd need, you know, six thousand of them to go bad at once for bondholders to suffer a loss. Now, that did happen at one point, but again, theoretically that is a little safer than what we're talking about here.
Can I just say, Tracy, I don't know I've may have talked about this in the office recently, but I've been watching the New York documentary by Rick Burns, which is Tim Burns's brother, it is so good and like I've always liked living.
In New York.
It's fine, but now I'm like, really like New York build It's a seventeen and a half hour documentary. I think you'd really like it. And it's all this like has this whole period of like when all these office buildings have gone up, and now particularly Park Avenue, I know we're talking about a Broadway building. Now I've become like I look at the buildings, I will I'm a New York City office buildings appreciator.
Now, Joe, this is actually true because we were in an office building recently and you were so excited to be there. For me, it was really yeah. Yeah, I thought it was really non descript and not that impressive, but you were genuinely excited and kept wandering around.
The office building was a corner, so again, I know a little said version fifty third in Park I sort of conclude it is like my favorite corner of all of New York City. It's like the sort of like mid century vibes and fountains and green tinted glass and stuff like that.
Anyway, we can get back to the you know.
Jody, Yeah, that's a pretty well shared sentiment. There is a famous quote by an architecture archegecture critic friends. It says, I'm going to quote it is the ambition of the New Yorker to live upon the fifth, to take his errands in the park, to sleep with his fathers in Greenwood. So it's it's a sentiment that's been shared for a few generations.
It finally after twenty years, So this may is twenty years of me living in New York. It's finally like all like clicked, and now I don't think I'm going.
To leave, okay, but just to go back to Let's move away from Park Avenue and go back to seventeen forty Broadway. But what's the deal with the tenants there? So this is in This is a pretty decent office building as far as I can tell, in a prime midtown location. Maybe it's not as shiny and new as some other things, but I would have thought that someone would be renting it out.
Well, it's a tricky time, right, So L Brands anchored the building. Fact, this is the problem with exposure to one even if it's a great tenant like L Brands, which was the former parent of Victoria's Secret They occupied I believe it was close to almost eighty percent of the space. Oh wow, And they said they were going to exit the tower. Now that comes in twenty twenty one, when your return to office is very much up in the air. It's going to be very hard to find
a tenant that would fill that kind of space. And it's going to be very hard to find a group of tenants that would want to fill that kind of space. So even if Blackstone had been able to fill that massive void left by L Brands, they would probably have to do it at a much lower rent. Right, So that's going to make a serious dent on their NOI. It's going to affect their ability to pay their debt service. And so what they did is they decided to walk away.
They walked away in twenty twenty two, they defaulted on the loan and they just said go with God. And that's kind of what happened. And what's funny, Tracy, is they're very salty about this one. So if you look at their press statements, starting maybe in the summer of twenty three, maybe a little earlier, they make it a huge point to say that traditional US office represents less
than two percent of our entire holdings. So now they're using the scale argument, Hey we're so big, And Brookfield has used this argument as well, Hey we're so massive. These are little blips on a very successful track record.
All right, let's take our tour a little bit further south, still on Broadway, let's head over to fourteen forty Broadway. Now, this is a building that caught my eye recently because it went into delinquency and I think it was responsible for a big portion of the uptick in the serious delinquency rate that we saw in the most recent month, which is now at its highest level since early twenty seventeen. This is a four hundred million dollar loan backing fourteen
forty Broadway now seems to be in serious trouble. What's going on there?
Well, so there's been a little bit of news since you wrote your piece. In fact, you just received a refi and this was predicted. I believe I knew it. Yeah, your story. They received a refin. Now it's a Faustian bargain type of refit. It's a very problematic refit because the appraised value of the property is just under it's about forty six they took a forty six percent haircut on the value of the building, but they did receive the loan. They did receive an extension until twenty twenty five.
Yeah, Joe, This to me is why I was so interested in the building, because it seems like a little microcosm of what's going on in office real estate at the moment. So you have higher benchmark interest rates obviously, you have tenants like we Work. They used to be in there and are not there anymore. You have Macy's, which is another sort of thematic ted Better Days company. Yeah, there we go. I was trying to be polite with thematic.
But death of retail and all of that, and yet and yet it still gets refinanced.
Yeah, they find a way. Wait, can I ask one more seventeen forty question. I know we moved on, but just one last thing. When there's one big tenant and so this other building, Okay, they have a few tenants and they're all maybe shaky or you know, to some extent.
How do you get like a triple e?
I mean, it just seems like inherently when you have eighty percent of the space rented to one company, that's no matter how strong the company or everything else that's got to be like a huge source of concern for the lender.
I would assume this is the this is the right question to ask. Unfortunately, a lot of the people at the ratings agencies don't seem to ask themselves that question. There are a lot of concerns about why something like DBRs or morning Star or there was one more I believe on this building, SMP, why are they providing triple A ratings to something with so much exposure to one tenant? And the answer is, well, I think it's their business
to keep the market going. I think if you speak to anyone who's steeped in this space, it's far from a purely objective, dispassionate game, the ratings game. So that's the answer to that, got it.
So for fourteen forty Broadway, when a REFI like this comes through and it's on ownerous terms where the value of the property has been massively downgraded, who actually takes the loss on that?
That's a great question. So in general, just stepping back for a minute, a lot of these Manhattan trophy towers have an owner and name right, So in this case, it was CIM, which is a massive money manager based out of LA But then they have an owner in skin in the game, let's say call it. And in this case, the pension fund that was backing CIM on the property is called q Super, so it's a Queensland
base so Queensland Australia based pension fund. So they're the ones who had most of their equity in this transaction. CIM essentially serves as the operating partner and has a little piece. So the ones who end up taking a bath on these things tend to be the sorry pension funds and.
The Australian pensioners.
Australian pensioners Canadian pensioners in many cases. So CPP has taken a bath on several properties in Manhattan recently. In fact, the one that cut a lot of headlines recently was they walked away. I think they took one dollar for their stake in a property and released themselves from certain debt obligations and walked away. And that's happening time and
time again. So if you notice the chatter on the sovereign wealth side, a lot of people are saying, ah, office may not be where I need to be anymore. And that's been super interesting. So yeah, in this case on fourteen forty, just a slight clarification, we Worke didn't in fact walk away. We work has walked away from a ton of leases all over the country, but in fact it decided to stay put at this building. Now, what change, though, is that it's doing it at a
way reduced rent. So I think it was paying something in the seventies back in the day, and then you know, it's not Adam Newman's company anymore, but it still has his kind of chutzba and it decided to work out a much better deal, so I think it's paying now in the forties a foot. Macy's, however, has walked away
as of January, it kind of exited its lease. So the building is only fifty eight percent occupied, and it's not in a very you know, I wouldn't call that like the most glamorous part of Manhattan.
So no, it's close to Penn Station, which is a place I go to a lot.
So yes, right, you're unlikely to get your hedge funds or blue chip financial tenants to step it. So you have a fifty eight percent occupied it's no park, correct, That's right? Are you guys? Cool with me at kind of indulging you in the numbers on this building.
Please, yeah, pratty please Okay.
Awesome. So the way that Manhattan Trophy Towers used to work is that it was a great way to announce your presence as a serious investor. So I'm going to run you through the brief twenty year journey of this building. Awesome. In two thousand and two, this Virginia real estate scion that started a company called Monday Properties came in bought
this property for two hundred and thirty million. Okay, did very well with it, and in the kind of the CMBs go Go days of seven, was able to bring in a big institutional investor, Prudential, and the tower was valued at four hundred and thirty four million, so pretty much double what Monday had bought in for. Then, obviously, the crash happened, and in twenty thirteen, another private equity firm, Rockpoint, came in paid three fifty million. That's what the tower
is valued at when they bought in. Then in twenty fourteen, it got super interesting in this have bled into your broader financial world. There was a company called American Realty Capital or either of you familiar with that.
Oh yeah, this was well, yeah, not here.
So Nicolas Shorsch went on sort of the acquisition tear of a lifetime and just bought up basically a tenth of Manhattan and had these weird non traded reed vehicles that he was using to fund all these purchases. Predictably, there was a major accounting scandal that company imploded in twenty fourteen, and that is when CIM bought in. So CIM bought in at about a five hundred and twenty million valuation, and today the valuation is at three hundred
and twenty million. And so this tower is fascinating, I think, Tracy, the reason I caught your attention, as did mine, is it has every character you can think of in New York real estate, from Adam Newman to Jeff Bezos, to these mutual funds to these Virginia scions. They've all played some kind of role in this tower.
And it's basically gone sideways now evaluation wise for twenty years.
Uh no, So Rockpoint did terrifically well. Rockpoint bought it at three fifty sold at five nine million nine or ten months later, so they.
Made like the current valuation is what.
The current valuation is three hundred and twenty million.
Okay, So like, yeah, that's what I mean if you just sort of looked at the starting valuation, the first number that you mentioned, and now that has not been a particularly great run for it.
Correct, it's been, that's been a rough go. But again, this thing about these markets is like a year and a half ago, we could point to this and say, wow, this building was appraised at five hundred and ninety five million, So it's really changed quite dramatically over these last eighteen months or so.
But to me, like the symbolism here is that even with the much much lower valuation, it's still getting refinanced and it's still kind of hanging on, and therefore is sort of a microcosm of what's going on with a lot of commercial real estate at the moment, which is, even though there is all this concern, so far, a lot of this has been able to be you know, refined or extended and pretended, whatever your preferred term might be. And I guess the big question is for how long?
Right? And I think this is a point that someone you had on earlier, Rich Hill, made very eloquently, and my way of putting it less eloquently, is this whole debate about wall of maturities is kind of a fugazi debate. It's sort of like if you guys remember this whole thing about TAM total addressable marketing.
Yeah, that's a Steve Eisman's favorite term, right right, it is.
Such a I mean, when the VCS were coming and let's say, okay, this company has smart locks. There are two million locks owned by institutional investors. Hence my TAM is gajillian trillion dollars. Right, it's just a complete I think if the debt clock has maybe another metaphor, it's a number that keeps going up or down based on
what the deliver of the message wants. So I've heard a thing from Bloomberg had an article about one point five trillion wall of maturities recently aries, which is a big debt fund throughout a two point five trillion number. But it's all meaningless because to your point, Tracy, these loans are getting reworked all the time. They're often getting extended, maybe at more painful terms. But this whole looming wall is just nonsense.
This might be a random question, but when a building has significant vacancies. Okay, I imagine that's a good time for a new tenant to come in because maybe they can get a good deal on rent. But on the other hand, do tenants express concern or have like, you know, if it's too empty, Like do they want their employees coming to work in such like an empty sort of
ghost building? I mean, maybe this isn't quite a ghost building, but does it become a sort of self fulfilling prophecy where as vacancy gets lower, it.
Becomes less appealing to potential tenants. Is that a thing?
It's sort of like if you've been single for a very long time.
Oh, that's like a big red flag.
Right. It's a really tricky thing. So if we're talking about companies making a big push for rto return of office, yeah, and about vibes and collaboration, tim Tower doesn't really give off the vibes that you need. So, yes, vacancye rates of whatever it's I think it's eighteen percent. We've seen some rates hit eighteen percent. This building is what forty two percent. That's not a good sign for a perspective tenant.
So either they come in and extract incredibly generous concessions from the landlord, or they just stay put or they don't show up. That's what happens.
You know what I think we should do. And this is not a well thought out plan, so please take it with a grain of salt. But I was just thinking these types of office buildings. There's been so much focus on office to residential conversion, but there are a lot of office building esque type things in Asia, like in Tokyo and Hong Kong that are filled with little independent shops.
Oh.
Like, you go into one, it's twenty stories. There's like a cat cafe and maybe a board game and.
Like a really cool like a food course.
Yeah, and you just kind of go through this war in of shops and you're never quite sure what's going to be around the next corner. But it's really fun. They should do something like that in New York. That's my idea.
Well, it totally could work for a couple of buildings we have had. Some there are in fact specialty cracy and Joe, you might want to talk to these people, but there are some specialty companies that essentially reimagine these dead buildings as beautiful events bass or pop up retail or even little restaurants and stuff like that. But how deep is that market? I mean, you could do that with five buildings. Maybe could you do it with all
the buildings around the hulking Pen Station? Probably not, you know, And how do you value those buildings if you're an investor, if you're sitting in Queensland, Australia and looking looking at your massive Manhattan investment, just tanking and value, you know, how do you take solid someone says.
We're going to turn it into cat cafes in your life?
Two things.
One thing I'll say about Penn Station is that for the first time and all of the time I've lived in New York, I don't I think there's any scaffolding in front of it. And it actually is kind of nice. Like we can't really build anything or do any construction quickly in this country apparently, but eventually it did get done.
Penn Station is not noad right now.
No, it looks nice. It's completely unfunctional. It's ridiculous.
But other than that, but.
There's nowhere to sit. Everyone has to line up in the middle of the room to get on their train single file.
And why they don't have more benches, you.
Know, the secret is to go across the road to the old part of the station, Yeah, and be there and no one's actually there and you can't get on your train immediately and avoid the line totally.
No, I do that.
I do that in fact, Yeah, I never go to what I always go to. Yeah, So all right, fourteen forty Broadway. It's sort of is it a microcosm or is it a the worst Like how much do the conditions going on Like that's sort of the big question right here, especially for that Queensland investor. How much is it reflective of what's going on in lots of other buildings.
Well, I think the they were caught particularly badly by an aging retailer and a company that went somewhat belly up in macy'son we Work, but their ability to get financing is absolutely What it reflects, more than anything else, is that lenders don't want to take these assets back, and.
Lenders, even though they will rail against these borrows and can try all they can, they are not willing to take these assets back. That's a that's a big part of it. The other part of it, which we haven't discussed yet, but I think it's probably the most fascinating part of the story is the fees. The fees on
these things are unbelievable. So, Tracy, your colleague at Bloomberg reported about seventeen forty Broadway, right, so that that building sold for one hundred and eighty six million, which would have if that whole amount went back to the bondholders, made them whole at least the top tranch the triple A trench, right. Instead, they were left with one hundred and seventeen million. So you're looking at what seventy million
odd in fees and advances, et cetera. So when we talk about who's making money in this market, it's the special servicers. It's the moment, it's the they're making a killing. It's an amazing time to be in the servicing business.
Yeah, someone's still making money from the money building, even if the money building is not generating that much money. How many times can I say money? That's a really good podcast.
That's really good.
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