620 Avenue of the Americas Owners Dodge a Bullet, But Face Future Hurdles

Months of turmoil revolving around the ownership status of 620 Avenue of the Americas appears to have come to an end. But with that problem seemingly resolved, the owners must now contend with another looming issue - growing vacancy in the building.

Real Estate Weekly reported last week that building owners Yair Levy, Meyer Chetrit and Charles Dayan had reached an agreement with REIT SL Green to maintain ownership of the building. Last year SL Green had reportedly begun foreclosure proceedings on a $30 million mezzanine loan it holds against the property after the owners reportedly failed to service the loan. A resolution was reached, according to sources in the Real Estate Weekly story, when the owners agreed to invest $10 million into the building in return for SL Green writing down about $10 million of its mezzanine loan.

The $10 million infusion is going to come in handy in the years ahead, as significant capital will be required to meet leasing costs associated with trying to replace major tenants in the building who will be vacating in 2010. Gap, which occupies approximately 35% of the building, and Filene's Basement, which occupies approximately 20% of the building, announced last year that they would not be renewing their leases in the building and would vacate later this year.

Looking just at the Gap availability of approximately 219,000 RSF, if we are to assume ownership providing $30.00 PRSF in work and paying commissions to its broker and the broker representing the incoming tenant(s) on a 10-year lease, the transaction costs, before accounting for any free rent, would exceed $10 million.