Thor Equities’ 597 Fifth Ave Value Cut in Half After Default

An appraiser took a hammer to two of Thor Equities’ Midtown buildings, pounding their valuation down to half of its former level.

The appraiser priced 597 Fifth Ave and 3 East 48th Street at $84 million, or 53 percent below the $180 million the buildings were valued at in 2014.

(left) 597 Fifth Ave, known as the Scribner Building; (right) 3 East 48th Street (Loopnet)

That was only a 4 percent drop from their appraised value last March, but that is no silver lining for Joe Sitt’s company, which has already given up on the properties.

The 12-story, landmarked 567 Fifth, known as the Scribner Building, and its six-story neighbor are now worth less than Thor owes on them. The office and retail buildings are coupled because they back a single $105 million CMBS loan Sitt took out in 2014.

After Thor defaulted on the loan in 2020, unpaid interest and fees swelled the buildings’ total debt, which reached $124 million last year, according to BisNow. Thor paid $109 million for the properties in 2011.

A Thor spokesperson characterized the valuation decline as “dated information.”

“We wrote these assets off years ago,” the spokesperson said. “We have been working actively with our lender towards a cooperative resolution.”

Thor has faced foreclosure on the properties since February, according to court records.

Sitt had asked to pay the loan off at a discount but the special servicer on the debt, Barry Sternlicht’s LNR Partners, rejected the offer, servicer commentary in Morningstar explains.

A UCC continuation that hit property records this month signals the bondholders on the CMBS debt are concerned that other defaults may affect their ability to recoup their investment.

A continuation statement gives the filer priority to collect on a debt if a borrower is facing multiple defaults.

Thor Equities fits that bill. The sponsor also faces foreclosure on two retail properties: 440 Broadway, which backs an $11 million loan, and a commercial condo unit at 50 Bond Street, collateral for an $8.5 million mortgage.

The unit at 50 Bond was slated for auction on Wednesday, according to court records, and 440 Broadway’s auction is set for Feb. 7.

The troubles at 597 Fifth Ave date back to 2017 when Sitt found itself with a 12,000-square-foot vacancy after Sephora left its ground-floor space. The landlord had been shopping around 597 Fifth since 2016 and the hole left by the cosmetics company created a new burden, compounded by the slowing retail market.

The building’s retail tenants had historically supplied about 80 percent of the building’s base rent, according to Morningstar. Revenues slipped to $1 million in 2017 from $8 million the year prior, and cash flow covered less than one-quarter of monthly debt payments.

Soon after, Thor signed Lululemon for a short-term lease, which buoyed revenue and occupancy for a few years. But the retailer moved on in 2020, “causing significant cash flow declines,” according to servicer commentary.

Club Monaco replaced Lululemon in 2020, but the new revenue failed to save Sitt from default. By late 2020, the building’s $105 million loan was en route to special servicing.

As of 2022, Club Monaco was paying $285 per square foot for its space, “far below the submarket average of $2,000 per square foot” for Fifth Avenue retail properties, Morningstar servicer commentary detailed.

LNR, acting on behalf of CMBS investors, filed a pre-foreclosure action against Thor in February 2023, asking a court to force a sale of the Scribner Building and 3 East 48th Street, according to court records. By April, both properties had entered into receivership.

An August report by the receiver found Thor had “effectively abandoned” the buildings. SL Green, the mezzanine lender on the portfolio, had tapped CBRE to manage it, then terminated the management agreement in July.

The receiver reported that just a quarter of the rentable area at 597 Fifth Avenue and 3 East 48th Street were occupied. Club Monaco, meanwhile, had been trying to negotiate its lease at the property but “had been unable to reach a responsible party willing and able to negotiate one.”

Foreclosure proceedings are ongoing, court records show, and a workout is still on the table, according to Morningstar servicer commentary. The debt comes due in June.

Sitt, in recent years, has pivoted from high-end retail to logistics and turned his attention toward office deals in the Lone Star state. Last month, Thor sold a 250,000-square-foot office property for $72 million to the city of Austin.

The investor, who hails from Brooklyn, has also made a self-proclaimed “underdog” bid for one of New York’s three downstate casino licenses, proposing a $3 billion Coney Island development.