Private School Falls More Than Eight Million Behind on Rent in FiDi
The future of an elite Lower Manhattan private school is under a cloud, after falling behind on millions of dollars in rent for more than a year, which has had the collateral effect of putting the building’s mortgage on a watchlist for loans that may wipe out investors who bought securities based on this debt.
In a story first reported by Crain’s, Léman Manhattan Preparatory School, located at 25 Broadway, has failed to pay rent to its landlords, the Wolfson Group, since June 2023. According to documents filed with the federal Securities and Exchange Commission (and related to the securitized debt issue in 2014), Léman’s rent for some 200,000 square feet at 25 Broadway was $6.1 million in 2014. It is not clear from these prospectuses whether that rent was fixed for the term of Léman’s lease (which runs out in 2030) or was scheduled to rise each subsequent year. At a minimum, this appears to indicate that Léman is now in arrears for approximately $8.2 million in rent for the 16 months between June 2023 and the present.
This deficit appears to have been a primary cause of the Wolfson Group defaulting on its $243 million mortgage for the building, when the note came due last April. As a result, the loan was transferred to special serving, a label that denotes efforts to work out new terms on distressed real estate debt, short of resorting to foreclosure. During these negotiations, the Wolfson Group bought more time by making a $7 million payment in exchange for an additional 24 to 30 months to get current on overdue payments.
In this parley, both sides seem to have considerable leverage. The Wolfson Group could theoretically hand the building back to its lenders, but the value of 25 Broadway — which is now approximately one-third empty — is now likely to be considerably less than the quarter of a billion dollars in debt by which the structure is encumbered. (This approach has been taken by several building owners on Lower Broadway, where commercial real estate has yet to recover fully from the downturn inflicted by the Covid pandemic and the work-from-home trend it sparked.) For this reason, actual foreclosure remains a remote prospect. The Wolfson Group purchased 25 Broadway in 1979 for $15 million.
Similarly, Léman can point to the declining value of office space in Lower Manhattan and offer the Wolfson Group a discounted amount of rent going forward. In the meantime, bondholders who bought the securities based on the mortgage for 25 Broadway have lost about 50 percent of their investment, because the financial troubles at the building have resulted in the debt trading at a distressed price. A representative the Wolfson Group did not respond to requests for comment.
But Paige Murphy, Léman’s head of communications, said the school “is experiencing record revenue and the highest retention rate in its history. In terms of outcomes, Léman students outperform students at other NYC independent schools on Measure of Academic Progress tests.”
She added, “consistent with the current commercial real estate market in New York, Léman and the 25 Broadway landlord are proactively collaborating to develop mutually beneficial lease terms, which we expect to be completed soon.”
The 1920s-era structure at 25 Broadway was built as the New York headquarters for the Cunard Line, in a time when steamship travel denoted the height of luxurious elegance. The building was designed by architect Benjamin Wistar Morris in Italian Renaissance style, and designated a landmark in 1995. A Cipriani event venue is located within the building’s Great Hall (and former ticket office), which features maritime-themed frescos by Ezra Winter between soaring vaults and arches that converge at 65-foot high ceilings.
If both the landlord and Léman end up parting company with 25 Broadway, its next life might be similar to that of other legacy Lower Manhattan office towers that are no longer viable as commercial space: a conversion to residential use.