$17.8M pre-foreclosure at 34th Street retail where tax could nearly equal rent

TD Bank filed a pre-foreclosure action yesterday in New York State Supreme Court alleging the $17.8 million in principal remaining from a 2013 loan secured by a 10,595-square foot retail condominium at 15 West 34th Street, in the Herald Square shopping district, between Fifth and Sixth avenues, was in a maturity default.

This property and others on that stretch have seen rents decline as a series of tenants has moved out or gone bankrupt since Covid, and lenders have filed several pre-foreclosure cases in the district. Some insiders say one of the main challenges is that the city won’t reduce taxes in step with the declining rents, making it at times impossible to refinance.

In this case, TD Bank alleges a maturity default. According to the complaint, “Borrower defaulted under the terms of the Loan and Loan Documents by failing to repay the loan in full on its scheduled Maturity Date of April 29, 2025.” The original loan was $20.3 million. The space had been occupied by shoe retailer Zumiez, but the tenant has vacated.

This condo is owned by a partnership that includes brand investor Steven Russo, Jeff Sutton of Wharton Properties, and Jeffrey and Eli Gindi, of Gindi Capital. It has 5,500 square feet of selling space on the ground floor.

Case LINK

Despite a few rays of hope for the area, such as Old Navy taking a long-vacant Gap space at 50 West 34th Street, the stretch remains challenged.

In many cases, aggravating the issue of lower rents, is the city’s reluctance to reduce taxes in step with the declining rents.  As one retail insider said, “That hurts the landlord’s ability to refinance because they can’t show a positive NOI [net operating income], because the old taxes are as high as the new lease, leaving an NOI of zero or even negative.”

For example, the annual property tax for 29 West 34th Street, according to the city, is $1.9 million, based on an estimated gross rental income of $6.6 million, but that’s based on rent paid more than five years ago by Aldo and Geox who both went bankrupt in 2020. Now the property is only grossing about $800,000 a year in rent.

Before Covid, this stretch of 34th Street east of Macy’s was buzzing as a discount retail shopping destination. But since the pandemic, the block has seen rents fall more than half, according to Real Estate Board of New York figures, but even more by actual street metrics, insiders say. Even with the decline, tenants are finding it hard to stay put, in part because the shopping area’s anchor, Macy’s, has seen sales decline sharply over nearly 10 years, falling from $929 million in 2014 to $514 million in 2023.

Since Covid, a large number of tenants have left the stretch of 34th Street between Fifth and Sixth Avenues, including Victoria’s Secret, Forever 21 (bankrupt), American Eagle, Aldo (bankrupt), Banana Republic, Geox (bankrupt), and Zumiez, among others.

Direct link to the property’s ACRIS page