Concern over the financial viability of One Seneca Tower – the former HSBC Tower – has prompted the company that services the building’s $75 million loan to transfer it to another firm that specializes in handling high-risk loans.
The transfer from Berkadia Commercial Mortgage to CW Capital Asset Management, reported by Fitch Ratings, won’t have an immediate effect on the building, the New York City-based owners, or the remaining tenants.
But it signals the loan is seen as highly troubled, now that the 850,000-square-foot tower will be 95 percent empty by year’s end. It could lead to refinancing, a short-sale or foreclosure. “I think it’s a logical next step in determining what the future of the building will be,” said Stephen Fitzmaurice, chief operating officer for Seneca One. “There has to be some reconciliation. It takes us one step closer.”
Built in 1972, the tower was appraised for $102 million in 2004 and was acquired, together with the 800-space Seneca One parking ramp, in 2005. The building now backs a $74.58 million commercial mortgage, which was packaged and sold to investors along with many other loans. But most observers say it’s probably worth less than half that in its current state.
The tower’s primary tenant, HSBC Bank USA, has mostly moved out of the building, consolidating to the HSBC Atrium at Washington and Scott streets and a facility in Depew. The No. 2 tenant, law firm Phillips Lytle LLP, will move out this month to its new headquarters at One Canalside, the former Donovan State Office Building on Washington Street. And the third-largest tenant, the Canadian Consulate, closed.
The owners, Seneca One Realty, won’t have the rental revenues to keep up payments or even cover the expenses of operating the building, let alone afford the balloon payment on the loan that is due in early 2015.
So with the loan now “facing imminent default,” according to Fitch, Berkadia wants someone who can more closely monitor the loan, respond to problems immediately, and take action.
A loan servicer manages the loan, tracks and administers paperwork, collects payments and forwards them to the investors who hold the note, and makes decisions regarding the loan on behalf of the investors.
With the value of the building sharply reduced by the lack of tenants and revenues, CW Capital could seek a new appraisal or calculate its remaining worth based on the discounted income.
Fitch said it even conducted a “dark value analysis” on the building, to study the potential recovery on the loan if the building is vacant. “The borrower has been actively marketing the property vacancies, but there have been no firm commitments or leasing prospects at this time,” Fitch said in its report.
Either way, observers say, the servicers and Seneca One could decide that it’s not worth holding onto the building and the loan, resulting in a short sale to someone who wants to acquire it and redevelop it. The principals behind Seneca One, Mark H. Karasick and Victor Gerstein, are known more as “buy-and-hold” investors, not developers.