731 Lex Loan Heads to Special Servicing Despite Bloomberg Lease Extension

Bloomberg’s pledge to hold tight at 731 Lexington Avenue may have cheered landlord Alexander’s, but it inspired less confidence in the noteholders of the building’s $500 million CMBS loan.

The debt landed in special servicing this month just as Bloomberg said it would extend its 99 percent lease of the building through to 2040, according to Morningstar Credit.

The loan matures in June, and Bloomberg’s commitment didn’t come soon enough for Alexander’s to refinance the debt given “the capital markets environment for an office loan of this size,” servicer commentary similarly noted. Bloomberg’s lease was originally slated to expire in 2029.

Alexander’s, which is partially owned by Vornado Realty Trust, offered to pay down $25 million of the debt in exchange for a four-year extension, but the special servicer rejected the proposal.

A spokesperson for Vornado did not comment in time for publication.

731 Lexington reported stable rent collections throughout the pandemic. But growing payments on its floating-rate loan have pressured that cash flow. In the last two years, the rate has risen to 6.2 percent from 1.4 percent, according to KBRA data.

Alexander’s took out the three-year mortgage in 2017, then exercised each of its four extension options. Debt service slowly ate away at revenue in the interim. Cash flow was covering 14 times monthly loan payments in 2021; the metric dropped to just 2 in 2023.

Fitch Ratings in February lowered its outlook on the 731 Lex debt to negative, noting “the possibility of a downgrade in the event the borrower and servicer are unable to agree upon extension terms.”

Still, Morningstar noted the transfer to special servicing does not mean an extension is less likely, noting “the servicer has tagged it as the workout strategy with a resolution by September 2024.”