SL Green, RXR’s Worldwide Plaza Debt to Special Servicing

The debt backing RXR and SL Green’s Worldwide Plaza is headed for the rocks as a massive maturity looms.

The owners of the 825 Eighth Avenue office building saw their $940 million senior mortgage transferred to special servicing, Bloomberg reported. RXR and SLGreen are delinquent on payments and won’t fund operating deficits, according to loan commentary. The debt comes due in 2027.

The building’s owners are trying to get a break on the loan. A spokesperson for SL Green said ownership was “in dialogue with its lenders toward a modification and extension of the underlying debt.” The spokesperson added that the landlord had “substantial reserves held by the lender to meet the recent leasing activity,” as well as the “funding of building carry costs.”

The industry term for that is “cash trap.” If a building owner stops making mortgage payments, it typically can’t collect full rent, as lenders require tenants to pay into a lockbox, which in turn pays the mortgage. If the loan is in default, any excess in the lockbox goes to the lender, either to pay down the loan or to hold as collateral.

That’s the lender’s leverage. But the owners of 825 Eighth Avenue have leverage too: They know foreclosing on the down-and-out office property is not an appetizing prospect for creditors. Other lenders have taken big haircuts on similar buildings.

Operating shortfalls came for Worldwide Plaza after law firm Cravath, Swaine & Moore let its lease expire this year, creating a cavity of roughly 30 percent of the building’s office space. No replacement tenant has been found. The other anchor tenant, Nomura Holdings, signed a 900,000-square-foot lease in 2011 that it can exit in 2027. As of last year it was using 700,000 square feet and was looking to downsize to 500,000.

The property is also saddled with $425 million worth of junior loans. Those lenders could be in danger of not being paid back at all. It’s unclear if the landlords are still paying that debt.

The 2 million-square-foot Worldwide Plaza includes retail space, residential space and a 49-story office building. At the start of the year, Wall Street securities firm Evercore ISI reported an implied value for the complex of $1.2 billion, down nearly a third from $1.7 billion in 2017.

SL Green and RXR acquired a 49.9 percent interest in the property at a $1.7 billion valuation seven years ago. The majority interest is owned by New York REIT, which is liquidating.

— Holden Walter-Warner