L&L, Mitsubishi Default on $93M Loan for Metropolitan Offices

As a wave of more than $16B in CMBS loans backed by New York City office buildings comes due in 2023, office assets with plunging valuations that can’t be refinanced because the lending window has shut are beginning to topple into default like dominoes.

The latest asset to tumble is the 18-story office portion of the 68-story Metropolitan Tower, which is located in a Zip Code with the densest population of billionaires in Manhattan: 142 West 57^th Street, in what’s known as the Plaza district of Midtown.

The other floors in the Metropolitan Tower are occupied by residential condominiums, which are selling for top market rates.

L&L Holding Co. and Mitsubishi Corp, owners of the commercial condo portion of the Metropolitan Tower, have defaulted on a $92.5M loan backed by the property and originated by Aereal Capital Corp.

The partners stopped making payments on the loan, according to a report in TheRealDeal.

L&L acquired the office space in 2006 from BlackRock. In 2016, Mitsubishi Corp. bought 98% of the equity in the office condo; the venture took out a $100M loan with Aareal.

The loan was refinanced with a $92.5M, floating rate interest-only loan in 2021. The rate of 300 basis points above Libor automatically goes up 300 points as a result of the default, TRD reported.

The latest high-profile default comes in a week when the New York Times amplified the profile of the self-proclaimed “Dr. Doom” of NYC real estate analysts, Stijn Van Nieuwerburgh, a real estate professor at Columbia University’s business school and co-author of a 2022 academic paper warning that NYC faces an “urban doom loop” due to the widespread adoption of hybrid work patterns.

Last year, Van Nieuwerburgh projected a drop in overall office valuations of more than $500B in the paper he co-authored with NYU.

This week, he told the NY Times that the current trajectory of the NYC office market, with average occupancy rates hovering around 50%, supports his estimate that office valuations in the city could take a $50B hit in coming years.

“We can debate whether we need 10% or 20% or 30% less office in the long run than we did before, but everybody agrees the number is greater than zero,” Van Nieuwerburgh said.

Van Nieuwerburgh noted that shares of publicly traded office landlords are trading near their lowest level since the pandemic started.

The NYT report cited a CRE analyst who estimated that nearly two-thirds of NYC’s office inventory of more than 400M SF is “facing obsolescence” because the buildings are decades old and largely unattractive to tenants.