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<\/p>\nA 27-story tower just steps from Central Park is headed to special servicing after losing hundreds of millions of dollars in value in a recent appraisal.<\/p>\n
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\n 650 Madison Ave, a Class-A office tower in Manhattan’s Plaza District, has seen its net operating income and its appraised value drop after its largest tenant, Ralph Lauren, cut its footprint by 40%.\n <\/p>\n
Vornado Realty Trust and\u00a0Oxford Properties<\/a>, the real estate arm of\u00a0the Ontario Municipal Employees Retirement System, own the 595K SF office and retail building at 650 Madison Ave. The joint venture requested that\u00a0the $800M\u00a0CMBS<\/a>\u00a0loan tied to the building be transferred to a special servicer<\/a>, citing \u201cimminent monetary default\u201d as the cause, according to a Morningstar Credit alert.<\/p>\n A new appraisal issued\u00a0this month\u00a0cut 21% of the Madison Avenue building\u2019s value from $1.2B to $950M. The Class-A Plaza District<\/a> building’s special servicer is Green Loan Services LLC, a subsidiary of<\/a>\u00a0New York City office giant SL Green.<\/p>\n The property\u2019s owners\u00a0didn’t fund a waterfall shortfall for the building\u2019s capital stack, resulting in a payment default, according to servicer comments.\u00a0<\/p>\n \u201cThe Special Servicer will continue discussions with the Borrower while evaluating all available legal and resolution options, including potential remedies such as foreclosure or loan sale,\u201d the commentary reads.<\/p>\n The shortfall came after luxury fashion house\u00a0Ralph Lauren<\/a>\u00a0reduced its footprint in the building by\u00a040% in January.<\/p>\n The landlord and tenant had\u00a0struck a deal in 2023 <\/a>that resulted in Ralph Lauren \u2014 previously the building’s largest tenant \u2014 paying\u00a030% less in rent for its new lease, cutting into the building’s net operating income and leading to\u00a0Fitch Ratings<\/a>\u00a0downgrading the building\u2019s debt.<\/p>\n The building\u2019s\u00a0net operating income had already shrunk by 3% last year, before Ralph Lauren’s new rents kicked in, according to a June Fitch Ratings report reported by Crain’s<\/a>.<\/p>\n Vornado<\/a>\u00a0and Oxford Properties didn’t immediately respond to Bisnow’s\u00a0requests for comment.<\/p>\n The joint venture has owned the property since 2013<\/a>, when\u00a0the pair purchased it from Ashkenazy Acquisition Corp. and the Carlyle Group for $1.3B, Reuters reported at the time<\/a>.<\/p>\n Vornado and Oxford\u00a0refinanced the building in 2019 with the $800M, 10-year, fixed-rate loan<\/a>\u00a0originated by\u00a0Citi, Barclays, Goldman Sachs and BMO Harris Bank.<\/p>\n Occupancy in the office tower dropped from 82% at the end of 2024,\u00a0per Vornado\u2019s annual report,<\/a>\u00a0to 74%\u00a0in June, according to Morningstar<\/a>.\u00a0The building was 97% occupied when the loan was underwritten.<\/p>\n Still, the building is more of an exception than a rule, Morningstar Credit Analytics\u00a0Senior Vice President and Sector Lead David Putro told\u00a0Bisnow.<\/p>\n \u201cThere’s definitely some facts from this one that are a bit anomalous to what we’ve been seeing in truly distressed office cases. This one doesn’t fit that pattern,\u201d he said. \u201cMy guess here is that there’s some kind of modification [that] gives them short term relief while they re-lease some of the space.”<\/p>\n