A 27-story tower just steps from Central Park is headed to special servicing after losing hundreds of millions of dollars in value in a recent appraisal.
650 Madison Ave, a Class-A office tower in Manhattan’s Plaza District, has seen its net operating income and its appraised value drop after its largest tenant, Ralph Lauren, cut its footprint by 40%.
Vornado Realty Trust and Oxford Properties, the real estate arm of the Ontario Municipal Employees Retirement System, own the 595K SF office and retail building at 650 Madison Ave. The joint venture requested that the $800M CMBS loan tied to the building be transferred to a special servicer, citing “imminent monetary default” as the cause, according to a Morningstar Credit alert.
A new appraisal issued this month cut 21% of the Madison Avenue building’s value from $1.2B to $950M. The Class-A Plaza District building’s special servicer is Green Loan Services LLC, a subsidiary of New York City office giant SL Green.
The property’s owners didn’t fund a waterfall shortfall for the building’s capital stack, resulting in a payment default, according to servicer comments.
“The Special Servicer will continue discussions with the Borrower while evaluating all available legal and resolution options, including potential remedies such as foreclosure or loan sale,” the commentary reads.
The shortfall came after luxury fashion house Ralph Lauren reduced its footprint in the building by 40% in January.
The landlord and tenant had struck a deal in 2023 that resulted in Ralph Lauren — previously the building’s largest tenant — paying 30% less in rent for its new lease, cutting into the building’s net operating income and leading to Fitch Ratings downgrading the building’s debt.
The building’s net operating income had already shrunk by 3% last year, before Ralph Lauren’s new rents kicked in, according to a June Fitch Ratings report reported by Crain’s.
Vornado and Oxford Properties didn’t immediately respond to Bisnow’s requests for comment.
The joint venture has owned the property since 2013, when the pair purchased it from Ashkenazy Acquisition Corp. and the Carlyle Group for $1.3B, Reuters reported at the time.
Vornado and Oxford refinanced the building in 2019 with the $800M, 10-year, fixed-rate loan originated by Citi, Barclays, Goldman Sachs and BMO Harris Bank.
Occupancy in the office tower dropped from 82% at the end of 2024, per Vornado’s annual report, to 74% in June, according to Morningstar. The building was 97% occupied when the loan was underwritten.
Still, the building is more of an exception than a rule, Morningstar Credit Analytics Senior Vice President and Sector Lead David Putro told Bisnow.
“There’s definitely some facts from this one that are a bit anomalous to what we’ve been seeing in truly distressed office cases. This one doesn’t fit that pattern,” he said. “My guess here is that there’s some kind of modification [that] gives them short term relief while they re-lease some of the space.”
The Plaza District is the tightest submarket in the city, with the lowest vacancy rate and the strongest Q3 leasing performance of all Manhattan office submarkets, with 1.85M SF of leases signed during the quarter, according to Colliers.