Drip, Drip, Drip

As the (largely commercial) real estate collapse advances, we have another interesting data point, the default and upcoming foreclosure sale of the tallest building in Brooklyn, the 93 floor mixed-use Brooklyn Tower at 9 DeKalb Avenue.

It could be argued that this is less of a CRE issue than it is an issue of higher interest rates and increased regulatory scrutiny of the intersection of New York real estate and money laundering by various oligarchs, but I do think that this is indicative of a fundamental problems in real estate.

I think that there is a significant chance of a repeat of the 2008 meltdown.

The mezzanine loan came due, and there was no cash to pay.

Who you gonna call? Ghostbusters!Expect to see more of this:

The bigger they are, the harder they’re hit by rising interest rates.

Developer Michael Stern has defaulted on his mezzanine loan at 9 DeKalb, Brooklyn’s tallest tower, and is now facing foreclosure.

Larry Silverstein’s Silverstein Capital Partners, which issued a $240 million mezzanine loan in 2019 to help finance the 93-story skyscraper at 9 DeKalb Avenue, has scheduled a UCC foreclosure auction for June 10, according to marketing materials from JLL.

It’s not clear what will become of the tower, which has become an object of strange fascination for its Gothic (some might say sinister-looking) design.

Think the building designed by  Ivo Shandor to summon Gozer the Gozerian, and you got the vibe.

………

A spokesperson for Silverstein said that 9 DeKalb’s junior mezzanine, senior mezzanine and mortgage loans are in maturity default, and the lender is enforcing its rights through a UCC foreclosure.

Ten31 reported JLL’s offering memo on X earlier Wednesday.

Stern’s JDS Development began building the tower in 2015 at the site of the former Dime Savings Bank. The 1,067-foot edifice includes a 130,000-square-foot retail section mostly occupied by the luxury gym chain Life Time Fitness, a rental portion with 417 units, and 143 residential condominiums in the upper portion of the building.

Absent the pre-pandemic real-estate mania, I'm not sure that the developer would have gotten a loan.  The whole concept appears to be half baked.

And now it's about to be sold at fire sale prices, so it's burnt bread, I guess.

I Hate Half-Assed Remakes

It looks like we will see a reboot of the 2008 financial panic, aka, "The Great Recession," only this time, it will be commercial real estate, (CRE) and not residential real estate that's going to cause a crash.

The WSJ is talking about a collapse in CRE in Miami, and one specific project, but it's really a canary in a coal mind:

The challenges swirling around a skyscraper known as One Brickell City Centre, which at around 1,000-feet high would be Miami’s tallest corporate tower, show how the city’s once-sizzling office market is starting to cool.

New York developer Related Cos. and Swire Properties, an international development firm founded by the British Swire family, are struggling to find an anchor tenant roughly a year after the groundbreaking. Related is restructuring its agreement with Swire, which owns the land, according to people familiar with the matter.

Swire even has considered selling the 1.55-acre site in Miami’s downtown, according to a document viewed by The Wall Street Journal.

Swire said it “continuously evaluates different options for its development sites” and that the one for One Brickell City Centre “is currently not for sale.” Related said it was continuing to work with Swire.

Rising interest rates and hybrid work have punished the U.S. office market. Miami for years weathered such headwinds better than most cities, thanks in part to a steady stream of corporate relocations and limited supply of office buildings.

………

But Miami is also suffering its most acute case of growing pains since the pandemic accelerated the business boom. Single-family home and rental prices have risen in Miami more than most anywhere else, and property insurance costs are soaring. Those trends make it harder for employees to move to the city. Executives who do relocate to Miami find that the top private schools are at capacity.

Yeah, the situation in Florida with property insurance verges on a Mad Max level apocalypse.

Related chairman Stephen Ross is among those whose interest in new South Florida projects has intensified. One Brickell City Centre, the 1.5 million-square-foot tower with 68 floors, is one of his more ambitious efforts. At the groundbreaking, Ross called it “the most important project in Miami,” while Swire president Henry Bott said the building would be “a beacon” for the city, with outdoor terraces on almost every floor.

Ross had pledged to bring in big-name tenants to the tower, which is scheduled for completion in 2028. He spoke with Ken Griffin about moving his hedge-fund firm Citadel to the site, according to people familiar with the matter.

………

Now the Citadel chief executive is no longer in discussions for a Dolphins stake. His company also passed on becoming the anchor tenant at One Brickell City Centre in favor of developing the waterfront site Griffin bought in 2022, where his plans include a luxury hotel for the top of the office tower.

Because Mr. Griffin no longer needs the office space, because people are working from home 3 days a week.

It's just one building, but it's points to a more general problem, and it looks like the lessons of the Great Recession have been unlearned in less than 2 decades.