Lipstick Building land CMBS loan Specialized Services loan

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Arthur Hooper from Ceruzzi Properties and the Lipstick Building at 885 Third Avenue (Google Maps; Hooper by Sasha Maslov)

The economic fallout fueled by the coronaviruses has pushed countless real estate loans for hotels and businesses to special services. But one of the last CMBS loans to run into trouble comes from a whole different asset class – the floor under a famous Midtown East office building.

The $ 272 million CMBS loan on the land under the Lipstick Building at 885 Third Avenue has been transferred to a special department, according to data from Trepp. The reason is listed as “Imminent Currency Default”. The borrower, Ceruzzi Properties, missed the June payment; the loan had been repaid until May 1.

The special service’s comment on the deal says the tenant of the land lease – a partnership led by Argentina’s Inversiones y Representaciones Sociedad Anónima, or IRSA – failed to pay last month’s rent. “The borrower expressed a need for help, which was referred to the special service,” the commentary notes.

According to a lawsuit filed by a sub-tenant of the property last month – which has since been abandoned – Ceruzzi sent a notice of default to the IRSA on May 15. The annual base rent for the ground lease was around $ 18 million in 2017, and was subject to a possible “fair market value” reset on May 1, according to loan documents.

The ground lease debt service coverage ratio was 2.0 in 2019, according to Trepp, indicating a rather strong financial position.

Representatives for Ceruzzi declined to comment.

In September, The Real Deal reported that Ceruzzi was looking to sell the land under the 592,000 square foot office building after the IRSA allowed an option to purchase the land under the 34 tower to expire. floors.

Ceruzzi and its partners secured the fee and leasehold interest financing in the property in 2017, and the loan was consolidated into a single-asset, single-borrower CMBS contract known as CSMC Trust 2017-LSTK. The developer owns approximately 78.9% of the entire land, and the remainder in the form of a “sandwich” land lease with another land owner.

Along with Ceruzzi, Shanghai Municipal Investment holds an 80% stake in the borrowing entity, according to the loan documents. SL Green also holds a preferred interest in the land lease.

(Source: Loan prospectus, via Trepp.)

(Source: Loan prospectus, via Trepp.)

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