The office building at 1140 Sixth Avenue in Midtown Manhattan has experienced a sharp decline in its ground lease valuation, dropping from $180 million in 2016 to $17.8 million today, according to Morningstar Credit. This represents a 90 percent decrease over less than a decade.
The value per square foot is now $70, which is lower than the asking rent of $85 per square foot at the property in 2012. Despite strong performance in the Grand Central area since the pandemic, American Strategic Investment Co., the owner of the building, has struggled financially and lost tenants.
Originally built in 1931, the 20-story tower saw significant investment when Blackstone purchased a defaulted loan on its ground lease for about $100 million and initiated a $40 million renovation. The interest was sold to American Strategic Investment Co.—then known as American Realty Capital’s New York City REIT—for $180 million in 2016.
That same year, the company secured $99 million in loans for the property. However, occupancy rates declined rapidly from 91 percent at underwriting to 79 percent by 2019. In 2021, vacancy exceeded 30 percent.
Net operating income also fell steeply from $9.5 million in 2016 to just $1.6 million last year. The largest tenant currently is City National Bank, occupying about 14 percent of available space with a lease running until 2033 at reduced rent levels. The second largest tenant—a coworking space operator—was granted a rent abatement through part of this year, based on information from Fitch Ratings. Annual ground lease payments are reported at $4.75 million.
Financial filings indicate that ownership has not significantly reduced its outstanding debt balance and faces an effective interest rate of 9.1 percent on its loan. In April, servicing of the loan was transferred to special servicer LNR Partners; foreclosure proceedings began in June after it was determined that ownership lacked sufficient funds for ground lease obligations and agreed to cooperate with lenders. A judge approved receivership for the lender following default as stipulated by loan documents.
Neither LNR Partners nor American Strategic Realty Co responded immediately to requests for comment.
