Lexington Avenue Tower Heads to Special Servicer
The continued high prevailing interest rate has created challenges for landlords with floating-rate loans as cited in the example of 731 Lexington Avenue which recently headed to special servicing. Building owner Alexander’s, which is partially owned by Vornado, received a rejection by the special servicer of its proposal to pay down $25 million of the $500 million CMBS loan maturing in June 2024 in exchange for a four-year extension. Despite reporting “stable rent collections throughout the pandemic,” and the recent commitment by Bloomberg LP to extend its lease through 2040 for its office space which spans 99% of the building, increased pressure on the building’s cash flow has been caused by growing payments on its floating-rate loan due to an increase in the interest rate from 1.4% to 6.2% in the last two years. As a result, Fitch Ratings “lowered its outlook on the 731 Lex debt to negative, noting ‘the possibility of a downgrade in the event the borrower and services are unable to agree upon extension terms.”