SL Green Wins Full Control of 625 Madison at Auction

SL Green has won full control of 625 Madison Avenue in a foreclosure auction held at the property last week and gaveled to order by Matthew Mannion of Mannion Auctions.

The auction is the denouement of a simmering years-long rent dispute between SL Green, which controlled the building under a long-term lease, and Ashkenazy Acquisition Corp., which bought the fee interest in 625 Madison in 2013 for $400M—anticipating a huge rent reset in 2020 as a prelude to plans to replace the building with a condo tower.

Prior to the rent reset, SL Green was paying $4.5M annually. As the reset approached in 2019, the Manhattan-based REIT bought a stake in a $194M mezzanine loan that had been provided to Ashkenazy by a group of lenders including Children’s Investment Fund and Winthrop Realty Trust, TheRealDeal reported.

The lenders moved to foreclose on the loan in June, full control of 625 Madison Avenue at the UCC auction, which was held at the 17-story office building between East 58^th and East 59^th streets, a block away from Central Park.

The rent reset finally was resolved earlier this year, when an arbitrator set the rent at $20.25, which triggered SL Green to write down its investment in the ground lease from $230M to zero. SL Green and its partners now are responsible for the $194M CMBS loan that financed the fee position.

A team at Newmark handled the marketing process for the UCC sale of 625 Madison.

“[The rent reset] was somewhat higher than we had anticipated, although far, far below, I think, what the fee owner had been putting into the market at that point, which was actually very deleterious to our position because there were discussions of rent levels of double or more, which were really never to be the case,” SL Green CEO Marc Holliday said, during an earnings call last month.. “We took a write-down on the leasehold portion of the asset in this quarter.”

The skyrocketing reset anticipated by the $400M fee interest purchase for the building was based on the assumption that the site was worth much more than the aging building as a potential redevelopment as a condo tower overlooking Central Park in proximity to Billionaires Row on 57^th Street.

According to SL Green’s 2022 annual report, the 562K SF 1950’s era building at 625 Madison was 18% occupied after anchor tenant Ralph Lauren vacated its 300K office lease in 2019. The report characterizes the property as an asset held for redevelopment.