Loan Backed by 731 Lexington Avenue to Special Servicing

The office tower at 731 Lexington Avenue created glowing headlines for its owner, Alexander’s REIT, earlier this month when Bloomberg inked a deal to keep its global HQ there until 2040.

Now, Alexander’s crown jewel is making headlines of different sort: Morningstar Credit has disclosed that a $500M CMBS loan backed by the building has gone into special servicing—and the special servicer has rejected Alexander’s offer to pay down $25M of debt on the loan, which matures next month, in exchange for a four-year extension.

According to the servicer commentary, Bloomberg’s long-term commitment for 947K SF at 731 Lexington did not come soon enough to refinance the debt due to “the capital markets environment for an office loan of this size.”

Morningstar’s report noted that the transfer to special servicing doesn’t mean an agreement on a loan extension won’t be reached, adding that “the servicer has tagged it as the workout strategy with a resolution by September 2024.”

Alexander’s, which is partially owned by Vornado Realty Trust-which manages and leases 731 Lexington-took out a three-year mortgage on 731 Lexington in 2017, then exercised four extension options on the debt. In the past two years, the floating rate on the loan increased to 6.2% from 1.4%, according to KBRA data.

During Vornado’s earnings call earlier this month, which took place shortly after Bloomberg signed its new deal, Steven Roth—who serves as CEO of both Vornado’s and Alexander’s—explicitly spelled out his thinking regarding the status of the $500M loan on 731 Lexington.

“We’re in the process of refinancing this asset, but I must say I am not excited about paying today’s market rate of 7% or even 8% for debt with all the trappings of leasing reserves, cash sweeps and such, which are admittedly protective of the lender, but don’t do much for our equity value,” Roth said, during the call.

“As we speak, my personal favorite is to pay the debt down and maybe even pay the debt off,” he added. “We shall see.”

Regarding the lease for Bloomberg’s office space, Roth said the competition from other landlords to “poach” Bloomberg’s global HQ was fierce.

“As you can imagine, every developer in town tried to pouch Bloomberg, and of course they looked at every opportunity, as they must,” he said.

Bloomberg’s original lease expires in 2029. Roth disclosed that the net rent on Bloomberg’s office space at 731 Lexington “will be subject of an appraisal in 2029 with the then rent adjusted up or down no more than 10% either way, based on the then market conditions.”