BH3 Sells Defaulted Mortgage on Manhattan Tower for $230M

125 Greenwich in June 2019. Image via of Google Street View

Real estate investment firm BH3, which purchased the non-performing loan on a luxury condo skyscraper in Manhattan’s Financial District last July, has followed up that move by selling the debt to an arm of Japan’s SoftBank Group for $230 million.

SoftBank-owned Fortress Investment Group picked up the defaulted mortgage on 125 Greenwich St., BH3 announced today, after the story was first reported by the Wall Street Journal. BH3 originally acquired the senior mortgage on the unfinished property for $195 million through its distressed-focused debt fund, BH3 Debt Opportunity Fund I LP, in conjunction with an unnamed private equity investor.

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Built by Bizzi & Partners Development, the Rafael Viñoly-designed tower is located at the corner of Greenwich Street and Thames Street, just south of the World Trade Center complex. The slender skyscraper topped out at 912 feet in March of last year and features 275 residential units totaling 320,000 net sellable square feet of residential space.

Condo sales launched in 2017, with 418-square-foot residences starting at $1.2 million and 1,933-square-foot units priced at $5.6 million and up. But the project’s sponsors, including New Valley, Bizzi & Partners, the Carlton Group and China Cindat, defaulted on loan repayments in mid-2019 amid lackluster sales. Singapore-based lender United Overseas Bank filed a notice to foreclose on the developers in July, claiming that the lending consortium was owed the $195 million that it advanced along with unpaid interest.

Fortress, which did not respond to a request for comment, is taking on the right to continue the foreclosure lawsuit through the loan acquisition. “As it stands now, the foreclosure’s ongoing,” Daniel Lebensohn, principal & co-founder of BH3, told Multi-Housing News.

He noted that construction on the substantially completed tower has been ongoing. “There was some work being performed over the last several months while we were in our position,” said Lebensohn.

Distressed opportunities

Led by Lebensohn along with Gregory Freedman, BH3 specializes in distressed asset acquisitions involving both debt and equity. The company set up a debt opportunity fund in November 2018 to take advantage of non-performing loan opportunities primarily in New York City and Florida.

Oversupply and a weakening market have brought Manhattan’s high-end condo boom to an end, while creating opportunities for investors. The Financial District saw an 18.8 percent year-over-year drop in the number of apartment units sold in the fourth quarter of 2019, according to a market report by Platinum Properties. Median price per square foot was down 5.2 percent compared to the previous year, with all sectors recording a decline except for studios.

“The uber luxury is just in a deep freeze,” noted Lebensohn. “The more bite-size Manhattan luxury sub-$5 million—and specifically the $3 to $5 million category—I think has some momentum, but it’s not what it used to be.”

Madison Equities and Gemdale Properties recently postponed the delivery of their 1,115-foot residential tower 45 Broad St., The Real Deal reported in January. The developers cited “market conditions” in their statement on the revised plans for the Financial District project, which included lopping 80 feet off the height.

SoftBank, the chief backer of beleaguered flexible office firm WeWork, acquired Fortress for $3.3 billion in 2017.