Ownership of 510 Madison Avenue, the speculative skyscraper being developed by Macklowe Properties, appears close to being restructured a number of sources say.
The roughly 350,000 square foot midtown tower was conceived at a highpoint in the Manhattan leasing market, when rental rates were soaring to record peaks and small financial and investment firms, the building’s targeted clientele, were hungry for top tier offices and were willing to pay exorbitant rates to get it.
The market has since declined well below the building’s lofty rental projections and last year's crisis on Wall Street has introduced a sense of frugality among even some of the most high flying hedge fund and private equity firms.
Only one tenant, Jay Goldman & Company, has committed to 510 Madison and that company is currently suing to get out of its lease on allegations the space wasn’t complete by the time it was scheduled to take possession.
A person familiar with leasing in the tower said that it was “about to receive an injection of capital” that would pay for incentives that have become necessary in order to woo tenants during the downturn.
The person suggested that the money would be used primarily to provide landlord contributions to the costs tenants will incur installing offices in 510 Madison’s unfinished interior spaces. The source said that with that incentive in hand as well as rental reductions, deals will be able to start getting done.
Even as leasing activity has begun to slowly pick up during the second half of the year, it's not clear whether 510 Madison has been able to attract any potential takers and if a perception of financial uncertainty at the tower was discouraging tenants.
One of the scenarios that has been posited by real estate experts who have been watching the building and also sources with knowledge of the tower is that O’Connor Capital, a financial firm that holds a mezzanine loan tied to the property, could pump more cash into the deal.
A similar scenario recently played out at 229 West 43rd Street, where the mezzanine lender Five Mile Capital took a large equity stake in that building and worked out a deal with other lenders to write down the senior mortgage on the property. In that case, Five Mile was working to avoid having its junior debt extinguished by an impending foreclosure.
The Union Labor Life Insurance Company provided the senior construction loan for 510 Madison Avenue, which was delayed by a fire earlier this year but is nearly complete. City records suggest the company has invested at least $267 million in the property’s development. Sources say that the company has flirted with selling its loan but hasn’t wanted to let go of the deal at the discount it would need to accept to clear it from its books.