By hook or crook, W Financial appears to be making progress on a prized real estate site in limbo.
Federal authorities are working to salvage a commercial lease for a First Republic bank branch that for years has slowed the development of an assemblage on the Upper East Side.
The bank’s failure seems likely to speed up the pace of development at the site, on the southeast corner of East 79th Street and Lexington Avenue, as the FDIC works to sell off lingering assets following the purchase of the bank’s customer deposits by JPMorgan Chase.
“The FDIC will maximize the value of the asset,” said Adam Stein-Sapir, a bankruptcy expert at Pioneer Funding Group. “This may be something that swings from a liability [for First Republic] to a potentially valuable asset.”
JPMorgan Chase has bank branches along East 79th Street one block east and two blocks west of the First Republic branch at 1135 Lexington Avenue, which further suggests that the sale of the branch and the development of the assemblage is imminent.
To save the bank’s leasehold interest in the two-story branch, and preserve the potential for a buyout that would help repay its creditors, the FDIC will take up First Republic’s legal defense against its new landlord, the lender W Financial, the agency recently told a court.
W Financial argued in a lawsuit in April that “First Republic Bank’s lease should be deemed extinguished by virtue of the February 1, 2023 foreclosure sale,” when W Financial took control of the assemblage from the now-defunct real estate developer HFZ.
W Financial had provided a $43.6 million loan to HFZ for the five properties in 2020, and after foreclosing on the borrower, it won a default judgment against First Republic. However, the bank successfully argued that it was not properly named as a defendant in the foreclosure action and the judgment against its leasehold interest was vacated.
While the FDIC fights to save the commercial lease, it will do so in order to sell it, and W Financial is likely to be the most interested buyer.
“The value of the asset might come down to how much each party knows about the asset,” said Stein-Sapir. Robin Schneiderman of Brown Harris Stevens Development Marketing told The Real Deal in March that the site would likely be at a stalemate until First Republic’s lease was bought out.
W Financial, JPMorgan Chase and the FDIC did not return requests for comment.
While the FDIC claims to maximize value while disposing of assets quickly, past reporting by TRD found that government asset sales tend to fetch below-market prices.
And although a lease buyout of a defunct bank is unlikely to command the large sums sometimes secured by residential holdout tenants, its sale would remove another obstacle in the path to build a 71,500-square-foot, as-of-right development on the site.
One final impediment, however, may be such a holdout tenant. The Don Filippo pizza restaurant next door, which has served up neighborhood slices for decades, had initially agreed to sell to Macklowe Properties, but the agreement was canceled in December.