An almost fully occupied 48-story Midtown office tower at 1633 Broadway houses top money managers, law firms and media outfits. Even so, the Class A building’s cash flow is falling and on Monday a ratings agency downgraded a security holding its mortgage as risk mounts that blue-chip tenants will continue paying less for space.
Citing a drop in “sustainable” cash flow, Fitch Ratings downgraded 1633 Broadway’s mortgage along with loans for an office tower in San Francisco and another in Chicago. The outlook is “negative,” Fitch said in a report.
“Due to performance declines” the loans “are not considered to have credit characteristics consistent with an investment-grade credit opinion,” Fitch said.
Fitch’s move is striking because 1633 Broadway, known as Paramount Plaza, looks to be in robust health by certain measures.
The 2.6 million square-foot property at the corner of West 50th Street is 96% leased, according to a February presentation from landlord Paramount Group. Tenants including Allianz Global Investors, Morgan Stanley, Warner Music Group, and law firm Kasowitz Benson Torres have long-term leases.
Annual cash flow has fallen by 6% since 2020, to $98 million, according to a report released last month by bond-rating firm KBRA. Rental income may come under further pressure soon because leases accounting for 25% of the building’s base rent will come due in the next two years.
Showtime Networks, the third-largest tenant at 260,000 square feet, could move out when its lease expires in January 2026. Charter Communications’ 100,000 square-foot lease expires next year. Showtime, a division of Paramount Global, pays about $55 per square foot and Charter $72, KBRA data show. Showtime has five- and 10-year renewal options. Kasowitz Benson has the right to terminate its lease on 150,000 square feet of space this spring, KBRA said in a 2019 report. A spokeswoman for the law firm did not immediately respond to a request for comment.
If the companies stay, they may command lower rates because Fitch said there has been “further weakening” in Midtown leasing since its last assessment 12 months ago.
One piece of good news is 1633 Broadway’s $1.25 billion mortgage, which carries a below-market interest rate of 2.99%, doesn’t have to be refinanced until 2029. At the last financing in 2019 building owner Paramount Group pocketed $140 million of the loan proceeds.
Paramount Group owns about 13 million square feet of commercial space in Manhattan and San Francisco. The real estate investment trust’s stock traded Tuesday for about $4.50 a share. A spokesman didn’t reply to a request for comment.
Aaron Elstein , 2024-04-16 19:33:44
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