AEW, ABS offer to turn over $42.77M Midtown East ground lease to lender Cerco
136 East 57th Street (Credit - Google)
Ground lessors AEW Capital Management and ABS Partners Real Estate offered to turn over the ground lease controlling the Midtown East office building at 136 East 57th Street once valued at $42.77 million to lender Cerco Funding, according to court records. AEW and ABS made the offer in October, according to a lawsuit filed in Manhattan State Court on December 22, 2023, in which Cerco Funding seeks access to books and records it claims it requested last month. The lawsuit is not seeking a money judgment.
This is another in a series of major landlords handing keys back to lenders following the steep decline in office property values harmed by Covid and a large percent of employees working from home.
The letter AEW and ABS sent informing Cerco that it would stop making ground rent payments alluded to the changes in the real estate market.
“The Borrower has determined that, due largely to macro-economic events affecting the real estate market generally, it no longer has any position of value in the Property,” the letter said.
State case LINK
In a related case, Cerco Funding filed an action on December 21, 2023, in U.S. District Court in Manhattan, alleging ABS Partner Real Estate principals Gregg Schenker and Steven Hornstock were guarantors on the loan and are liable for any unpaid principal or other expenses.
According to the state court complaint, “On October 24, 2023, P8 [AEW and ABS] informed Cerco that it would not make the quarterly Ground Rent payment due on November 1, 2023, and offered to tender the Property to Cerco… On November 15 and 17, 2023, Cerco requested P8 to provide information relating to the Property in light of P8’s default on the Ground Lease. P8 did not provide any documents in response to Cerco’s request for information and is in breach of its fiduciary duty.”
ABS Partners Real Estate and AEW Capital Management through the entity P8 Abs-Ee 695 Lex Leaseco, LLC net leased from Silk & Halpern Realty Associates’s Silk & Halpern 57, LLC 1 parcel, including the tax class tower-type office building (O4) at 695 Lexington Avenue in Plaza District. The deal valued at $42.77 million, closed on August 1, 2019 and was recorded on August 20, 2019. Then in March 2022, AEW and ABS borrowed $23.5 million from Cerco Funding.
An attorney representing Cerco Funding sent an email dated November 15, 2023, to an attorney representing AEW and ABS, seeking answers to 12 operational questions. According to the complaint, the ground lessors have not provided the requested documents.
The 12 questions:
1. Is Newmark still the listing agent for the Property and can you provide a copy of any
written agreement with Newmark. Please also let us know if any other agents have
listing agreements and provide copies.
2. Who is currently managing the Property?
3. Who is currently paying the operating expenses for the Property?
4. Where is the rent received being deposited and what is being done with the rent?
5. Who is paying the Real Estate Taxes and please provide copies of the Tax Bills?
6. Please provide an updated rent roll.
7. Please provide an updated Stacking Plan.
8. Please provide a current list of Accounts Payable with aging.
9. Please provide operating financial statements for the Property through at least 10/31.
10. Lender needs to perform an inspection of the Building within the next week.
Please provide dates and times for same.
11. Updated Rent Roll with Delinquency Report.
12. Employee Payroll by person.
The property
The office building in Midtown East has 85,449 square feet of built space according to a PincusCo analysis of city data. The parcel has frontage of 50 feet and is 100 feet deep with a total lot size of 5,040 square feet. The zoning is C5-2 which allows for up to 10 times floor area ratio (FAR) for commercial and up to 10 times FAR for residential with inclusionary housing. The city-designated market value for the property in 2022 is $23.2 million. The most recent loan totaled $23.5 million and was provided by Cerco Funding on March 8, 2022.
Direct link to the property’s ACRIS page.