CIM Group & QSuper About to Give 740K SF Office Tower Back to Lender

CIM Group and QSuper, the Australian pension fund, may be on the brink of relinquishing control of a Midtown Manhattan office building at 1440 Broadway, where WeWork stands as the largest tenant. 

What is happening with the Broadway building: The investors secured a $399 million single-asset, single-borrower CMBS loan in 2021 to refinance the 25-story, 740,000-square-foot office building. This loan has now been transferred to a special servicer, which recently stated that the "borrower will be deeding the property back to the lender."

CIM Group, along with QSuper, acquired the Broadway office tower in 2017, and according to reports, the transfer to special servicing took place "as part of the negotiation." The move was necessary because of the CMBS structure, where negotiations require the loan to be transferred to special servicing first. The circumstances have raised concerns, with a Trepp email alert noting that "the special servicer comments are not encouraging."

The history of the tower’s debt: The floating-rate debt, securitized by JPMorgan Chase Bank, was originated when the property's value was $540 million. However, shortly after the loan was refinanced, it was placed on a watch list, and it is set to mature in May 2024. Data shows that by the end of 2022, the property's debt service coverage ratio stood at 0.77%, decreasing to 0.75% by the end of Q1 this year.

WeWork’s situation: The coworking space provider had leased 40.5% of the property when the loan was securitized, with 236,000 square feet signed in 2018. While WeWork is no longer listed as a tenant, a WeWork spokesperson clarified that they are still a tenant at the building, and a change in ownership would not impact their status.

WeWork has informed investors that it is renegotiating nearly all of its leases to avoid bankruptcy, and the company missed an interest payment last month, indicating a dwindling range of solvency options.

They are not alone: CIM Group is not the only office landlord facing such challenges, as companies like RXR and Blackstone have also had to navigate similar issues in recent times. Given the turbulent real estate landscape, the situation highlights the complex challenges facing property owners and lenders in the current market.