Manhattan Office Sells for 25% of Cost to Build It
Foreclosure auction of Churchill asset sees low benchmark for sale.
A six-story building that was constructed in 2019 next to Penn Station has sold at a foreclosure auction for about 25% of what it cost to build the asset.
Marathon Asset Management acquired the six-story building, located at 263 West 34th Street and encompassing about 40K SF of office and retail space, for $16.5M during an auction held on the steps of the old County Courthouse in Lower Manhattan.
Marathon put down a credit bid, using their existing debt. The next highest bidder at the auction was $16M, TheRealDeal reported.
Marathon initiated a foreclosure on the property two years ago, alleging that a group led by Churchill Real Estate defaulted on $50M in loans backed by the building at 263 West 34th Street.
Churchill said in a court filing that its partnership group had spent more than $90M acquiring the land and developing the building on West 34th.
The building was nearing completion when Marathon loaned the Churchill-led partnership $52M across three loans to refinance debt on the project and finish construction. However, after the outbreak of the pandemic, pharma giant Merck backed out of a six-floor lease at 263 W. 34th.
Avison Young, which was tapped to market the space, said it was able to lease 40% of Merck’s assigned footage, which did not cover Churchill’s mortgage statements, TRD reported. Marathon filed for foreclosure and a receiver was appointed who set up this month’s auction of the property.
In Q2 2023, Manhattan reached a new record office availability rate of 19.9%, including 15.4% direct availability and 4.5% sublease availability. The 103.3M SF of available space grew from 102.4M in Q1 2023, according to Avison Young’s second quarter market report.
Through the first half of 2023, Manhattan’s office market has experienced 12.2M SF of leasing activity, 39.5% below the pre-COVID average and 29.8% below the first half of last year.
Through the first half of 2023, Trophy and Class A properties (the top 25% of office inventory) represented 72.6% of leasing activity across Manhattan. Avison Young said.