Cerco Funding acquires $8.6M Midtown East office ground lease after AEW, ABS default

Cerco Funding through the entity Lex57 LLC signed as tenant for a long-term ground lease valued at $8.6 million with landlord Silk & Halpern Realty Associates through the entity Silk & Halpern 57, LLC at the office building (O4) at 695 Lexington Avenue also known as 136 East 57th Street, in Midtown East, Manhattan. The expected use is cash flowing.
The deal closed on February 19, 2025 and was recorded on March 6, 2025. The property has 102,917 square feet of built space according to a PincusCo analysis of city data. The sale price per built square foot is $83 per the PincusCo analysis. (The price per square foot analysis is the transaction price divided by square feet as reported in public records and assumes no air rights have been sold.)
The signatory for Silk & Halpern Realty Associates was Richard Halpern. The signatory for Cerco Funding was Peter F. Cervinka . This is a ground lease for the building with 93.5 years remaining.

The overall transaction is similar to a deed-in-lieu of foreclosure. In this instance an ABS Partners Real Estate and AEW Capital Management affiliate signed a 99-year ground lease August 1, 2019, with landlord Silk & Halpern valued at $42.78 million, and then in 2022 borrowed $23.5 million from Cerco Funding. The lessees allegedly defaulted and Cerco stepped into ground lease position. PincusCo reported in December 2023 when AEW and ABS offered to turn over the ground lease.

Prior sales and revenue

Prior to this transaction, PincusCo has no record that the buyer Cerco Funding had purchased any other properties and has no record it sold any properties over the past 24 months.
The seller Silk & Halpern Realty Associates had not purchased any other properties and sold one property in one transaction for a total of $26.8 million over the same time period. The 102,917-square-foot property generated revenue of $5.7 million or $55 per square foot, according to the most recent income and expense figures.

The property

The office building in Midtown East has 102,917 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 5,041 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.

Violations and lawsuits

The property was involved in two lawsuits and zero bankruptcies over the past two years. The highest value suit was a $42.8 million judgment concerning a books and records filed on December 22, 2023, by Cerco Funding against AEW Capital Management and ABS Partners Real Estate. In addition, according to city public data, the property has received one DOB violation, $10,000 in ECB penalties, and $16,550 in OATH penalties in the last year.

Development

There are no active new building construction projects or major alteration projects with initial costs more than $1 million on this tax lot.

The neighborhood

In Midtown East, The majority, or 81 percent of the 62.6 million square feet of commercial built space are office buildings, with hotel buildings next occupying 7 percent of the space. In sales, Midtown East has the 2nd highest sale turnover among other neighborhoods in the city with $2.8 billion in sales volume in the last two years. For development, Midtown East is the 2nd most active neighborhood among other neighborhoods. It had 17.8 million square feet of commercial and multi-family construction under development in the last two years, which represents 28 percent of the neighborhood’s built space. There was one pre-foreclosure suit filed among other office buildings in the past 12 months.

The block

On this tax block, PincusCo has identified the owners of 19 of the 33 commercial properties representing 510,456 square feet of the 1,767,140 square feet. The largest owner is Spitzer, followed by Apple Hotel Reit and then Bldg Management.
On the tax block, there were two new building construction projects totaling 285,185 square feet. The largest is a 145-unit, 174,532 square-foot residential (R-2) building submitted by Rony Attia with plans filed August 20, 2021 and permitted December 29, 2022. The second largest is a 151-unit, 110,653 square-foot institutional (I-2) building submitted by Hines and filed by Sarah Hawkins with plans filed March 2, 2017 and permitted June 5, 2018.

The majority, or 49 percent of the 1.8 million square feet of built space are office buildings, with hotel buildings next occupying 24 percent of the space.

The seller

The PincusCo database currently indicates that Silk & Halpern Realty Associates owned at least two commercial properties in New York City with 187,968 square feet and a city-determined market value of $50.3 million. (Market value is typically about 50% of actual value.) The portfolio has $22.8 million in debt, borrowed from Apple Bank for Savings. Within the portfolio, all identified are office properties. They are all located in Manhattan.

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