A chic gallery space next to the High Line is facing foreclosure after the landlord slashed rents during the peak of Covid to keep art dealers from leaving.
The owner of the ground-level retail space at 525 W. 22nd Street granted tenants steep discounts after occupancy tumbled to 42% in late 2020. The rent reductions stopped the bleeding, and today the Chelsea building’s 16,000 square feet worth of gallery space is 100% occupied, according to Moody’s. Tenants include Miles McEnery, which showcases contemporary painting, and Yancey Richardson, which specializes in 20th century and contemporary photography.
Unfortunately, the steep drop in rental income has caused trouble for the property’s landlord, Midtown-based real estate investor Savanna, according to CoStar. A $14 million mortgage for the posh storefronts was transferred in November to special servicing, the financial equivalent of intensive care, a month before it came due.
“The borrower is working toward a modification that could involve a principal paydown,” Moody’s said in a report issued last week. “And the special servicer is dual-tracking foreclosure while negotiating resolution options.”
Savanna didn’t reply to requests for comment.
The firm owns several older Midtown buildings, including 521 Fifth Ave., a 460,000 square foot office tower acquired in 2019 for $381 million from SL Green. Savanna acquired 1375 Broadway for $435 million in July 2020, five years after the 500,000 square-foot building changed hands for $310 million. Savanna is led by co-chairmen Nicholas Bienstock and Christopher Schlank.
The U.S. art market, which is centered in New York, had a down year in 2023. Sales fell by 10%, to $27 billion, according to a report by Art Basel and UBS. Globally, 48% of dealers expect sales to be about the same this year and 16% expect a decline.
Known as the Spears Building, 525 W. 22nd St. was built in 1893; its upper floors are condominiums that aren’t subject to the foreclosure threat faced by the ground-level retail.
Bond-rating firm KBRA said “several” tenants vacated in 2020 due to the pandemic but by late 2022 the spaces were fully occupied after Savanna lowered rents and the McEnery gallery expanded. The price paid by the landlord to fill the vacancies was steep: Cash flow from the gallery tenants came in at $720,000 in 2022, down from $1.2 million in 2013, when the mortgage was packaged into a security sold to institutional investors, KBRA said.
A January appraisal showed the value of the gallery space had fallen by 32% over the past decade and is “marginally” above the mortgage’s $14 million balance, Moody’s said.
Aaron Elstein , 2024-03-27 18:45:49
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