A trip to special servicing wasn’t sufficient for ownership to close the gap with its lender at a Financial District retail spot.
Last week, Deutsche Bank filed to foreclose on Crown Acquisitions and Morgan Stanley at 170 Broadway, Crain’s reported. A $64 million mortgage behind the filing came due in April.
Morgan Stanley declined to comment to the publication, while the Chera-controlled Crown did not respond to a request for comment.
The mortgage was sent to special servicing in February due to “imminent monetary default,” according to credit rating agency KBRA. At the time, ownership was behind on loan payments.
All 16,000 square feet of the retail property are occupied by Gap, which agreed to pay $263 per square foot on an annual basis for the space beginning in 2015. Its lease included annual 3 percent escalations before its expiration in 2030.
But the relationship between the landlord and its sole tenant soured during the pandemic. Gap shuttered the 170 Broadway location in March 2020 under a state mandate, then declared it would stop paying rent at stores closed due to Covid restrictions.
The dispute between the two sides ultimately wound through the legal system, where ownership prevailed and Gap was forced to pay the overdue rent it initially declined to pony up. The tenant already appeared unlikely to renew its lease when the loan was sent to special servicing, according to KBRA, setting up concerns about refinancing the debt when vacancy loomed for the entirety of the property.
It’s unclear whether the foreclosure proceedings will impact Gap’s decision to stay or leave when its lease comes due.
In 2023, Vornado Realty Trust’s joint venture with Crown and other investors defaulted on a $450 million non-recourse loan at 697-703 Fifth Avenue. They escaped distress by paying down a portion of the mortgage and scoring a fresh $355 million loan, which is set to come due next month.— Holden Walter-Warner