Lender takes back Garment District office building with $41M defaulted loan

A securitized loan trust through a judicial foreclosure auction in August took title to a Garment District office building at 29 West 35th Street that secured a $41 million defaulted loan, court records show. The total judgment was $57.6 million, and the winning bid was $22 million. The sale was held at the State Supreme Court House in Lower Manhattan on August 21, 2024.

This is the highest value foreclosure sale, based on original loan principal, since June when Urban Edge Properties lost the  Kingswood Center office and retail building (O5) at 1630 East 15th Street in Sheepshead Bay, Brooklyn, which had an original loan of $65.5 million. The auction winner in that instance was also a CMBS trust.

The former owners at 29 West 35th Street were Paul Shapour Sohayegh and Roni Movahedian, who operate Empire State Equities. The special servicer, LNR Partners, on behalf of bondholders of the commercial mortgage-backed security Series 2019-BNK19, filed the pre-foreclosure action, in January 2022.
Case 850026/2022 LINK

On April 12, 2024, a New York State Supreme Court judge ordered the foreclosure auction.

A significant number of office buildings in Manhattan have been sold at a discount or at auction due to a large decline in values since Covid.

The Real Deal reported in March 2023 that LNR Partners was seeking a judgment of foreclosure and sale at the building, and that the owners had previously faced foreclosure in 2010 after defaulting on a $29.2 million loan during the 2008-2009 downturn, but ending up stabilizing the building.

Sohayegh and Movahedian purchased the building in July 2007 for $30 million, and after several refinancings, through the entities American Equites LLC and United Group LLC, took out a $41 million loan in May 2019 from Wells Fargo, which packaged it into the CMBS structure.

The property

The office building in Garment District has 71,180 square feet of built space according to a PincusCo analysis of city data. The parcel has frontage of 65 feet and is 98 feet deep with a total lot size of 6,419 square feet. The zoning is M1-6 which allows for up to 10 times floor area ratio (FAR) for manufacturing. The city-designated market value for the property in 2022 is $10.3 million.

Prior sales and revenue

This property was sold for $30 million on July 16, 2007.

The 71,180-square-foot property generated revenue of $2.2 million or $31 per square foot, according to the most recent income and expense figures.

Development

For the tax lot building, it received its initial certificate of occupancy on July 25, 2012.

Violations and lawsuits

According to city public data, the property has received one DOB violation, $2,400 in ECB penalties, and $8,715 in OATH penalties in the last year.

There were no lawsuits or bankruptcies filed against the property for the past 24 months.

The neighborhood

In Garment District, The majority, or 69 percent of the 52.3 million square feet of commercial built space are office buildings, with hotel buildings next occupying 13 percent of the space. In sales, Garment District has near average sales volume among other neighborhoods with $555.8 million in sales volume in the last two years and is the 15th highest in Manhattan. For development, Garment District is the 5th most active neighborhood among other neighborhoods. It had 7.3 million square feet of commercial and multi-family construction under development in the last two years, which represents 14 percent of the neighborhood’s built space.

The block

On this tax block, PincusCo has identified the owners of 16 of the 33 commercial properties representing 900,219 square feet of the 1,436,912 square feet. The largest owner is Aju Hotels Investments, followed by Aron Rosenberg and then Bldg Management. There are no active new building construction projects on this tax block.

Direct link to the property’s ACRIS page and link to DOB NOW portal.