Between nonpaying tenants and antsy lenders, commercial landlords have been under increasing pressure throughout the pandemic, and even a major player is not an exception.
The Chetrit Group, one of the biggest privately held real estate companies in New York, is a month behind on payments for the $76.5 million mortgage backed by its mixed-use buildings at 427 and 459 Broadway in Soho, according to Trepp.
The problem is a drop in tenant occupancy and an increase in real estate taxes, according to the securitized loan’s servicer, KeyBank.
When the two-building portfolio was assessed shortly before the loan’s origination in December 2014, its 70,500 square feet of retail and office space was fully leased. The loan was underwritten assuming that net operating income would be 1.39 times its debt service. But from 2015 to 2019, the figure hovered between 1.11 and 1.33.
And in 2020, the portfolio’s net operating income fell to $2.9 million — some $2 million less than in 2019. That left net operating income at 0.75 times the debt service, according to Trepp.
Part of the issue was a 13,000-square-foot retail vacancy at 427 Broadway that had persisted since July 2017 when American Apparel, in bankruptcy, shut down the store. In addition, Psyop Media Company, a major office tenant in the building, left during the pandemic with five years remaining on its lease. The portfolio-wide occupancy was about 64 percent as of April.
Psyop is required to pay the landlord a $4 million early termination fee, according to KeyBank’s commentary. The tenant has already paid a half of it to Chetrit, which reportedly passed it along to the lender. Psyop will pay the rest over a 24-month period.
The Chetrit Group and Psyop Media did not return phone and email messages seeking comment.