Larry Silverstein and Nathan Berman are going into extra innings to close on their $180 million purchase of 55 Broad Street.
It’s been more than five months since Silverstein Properties and Berman’s Metroloft Management went into contract in May to buy the 30-story Financial District tower from Rudin Management in an office-to-resi conversion play.
The buyers had a deadline to close the deal by the end of October, but now say they plan to close the deal by the first quarter of next year.
“Given the current interest rate environment and general economic forecasts, all debt and equity raises are much more challenging today than they would have been 6 to 8 months ago,” Berman told The Real Deal via email.
“55 Broad Street in particular is not immune, but in fact better positioned than most — given the sponsorship, solid economics and continued strength of the residential rental market.”
He vowed, “We will close by the first quarter of 2023.”
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Sellers typically give their buyers 60 to 90 days to close large commercial deals, so the original end-of-October deadline was already an extended timeframe that recognized the challenge of financing deals as the Federal Reserve aggressively pushed up borrowing costs.
The central bank is expected to hike interest rates by another 75 basis points next week and has one more meeting planned this year, in December. The cost of financing a big commercial real estate deal seems likely to only get more expensive.
It’s not clear whether Silverstein and Berman have rates locked in.
When asked if the financing is already secured, Silverstein Properties president Marty Burger said “we have all the money we need to close this” and that he is confident they will finalize the purchase at the originally negotiated price.
“The deal we cut with Rudin is the deal we’re closing on,” he said.
A representative for Rudin said they too are confident it will close.
Rising interest rates, the war in Ukraine and the possibility of a recession are making it difficult to execute big real estate deals. Many owners are choosing not to put their properties up for sale, while others have pulled properties off the market when the prices they expected don’t materialize.
In the most extreme cases, deals are disintegrating.
Andrew Chung’s Innovo Group lost its $30 million deposit when the company’s attempt to buy the HSBC Tower at 452 Fifth Avenue for $855 million fell apart. While several issues led to its demise, the sudden increase in interest rates played a significant part.
The 55 Broad Street deal is different in some ways. While Chung had to deal with a large vacancy at a time when doubt plagues the office market, Silverstein and Berman are planning to convert the 425,000-square-foot building into apartments.
Also, Property & Building Corp., the owner of the HSBC Tower, is listed on the Tel Aviv Stock Exchange and had public shareholders to answer to.
Silverstein and the Rudins belong to real estate’s clubby circle of venerated families, in which it would be considered unseemly to let an agreement devolve into a spectacle.