The ground lease for the office building at 1140 Sixth Avenue in Midtown Manhattan has experienced a significant decline in value, dropping by 90 percent since its last appraisal. According to Morningstar Credit, the property was valued at $180 million in 2016 and is now worth just $17.8 million.
The per-square-foot value of the building currently stands at $70, which is lower than the asking rent of $85 per square foot in 2012. The decline comes despite a general post-pandemic recovery in the Grand Central area of Midtown. American Strategic Investment Co., which owns the building, has faced financial challenges and tenant losses.
Built in 1931, the 20-story tower underwent a $40 million renovation after Blackstone acquired a defaulted loan on its ground lease for about $100 million. Following renovations, Blackstone sold its interest to American Strategic Investment Co.—then known as American Realty Capital’s New York City REIT—in 2016 for $180 million.
In that same year, the company took out loans totaling $99 million on the property. However, occupancy rates declined from 91 percent at underwriting to 79 percent by 2019, according to Morningstar Credit. In 2021, vacancy rose above 30 percent.
Net operating income also fell sharply from $9.5 million in 2016 to just $1.6 million by 2023. The largest tenant is City National Bank, occupying about 14 percent of available space under a lease running through 2033 but at reduced rent levels. The second-largest tenant—a coworking space operator—received a rent abatement into part of this year as reported by Fitch Ratings. Annual ground lease payments are set at $4.75 million.
Financial pressures have persisted for ownership, with an effective interest rate of 9.1 percent on outstanding balances according to recent federal filings. The loan associated with the property was moved into special servicing in April and foreclosure proceedings began in June after it was determined that ownership lacked sufficient funds to maintain payments on the ground lease; cooperation with these proceedings has been confirmed by all parties involved. A judge approved receivership for the lender following default provisions outlined in loan documents this July.
Neither LNR Partners—the special servicer—nor American Strategic Realty Co responded immediately to requests for comment.
