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By: Benyamin Davidsons
There are some who will still bet on the recovery of Class-B commercial real estate, despite today’s high vacancy rates. As reported by Crain’s NY, Marc Bengualid, president of EJMB Realty, just refinanced the mortgage for two prewar office buildings in Midtown Manhattan and has invested in upgrades. One of the properties is a 12-story building at 6 E. 39th St., in the garment district, built in 1920, also known as the Craftsman Building. The other is a 16-story brick building, less than a mile west, at 330 W. 38th St., on 9th Avenue, built in 1928.
Both are century-old Class B office buildings, and together they offer a total of 300,000 square feet of space. Per Crain’s, these are the kind of building that banks are nervous about refinancing loans on, and which landlords are even more reluctant to refinance, because today’s high interest rates are especially a burden when occupancy rates are as low as 12%, in some older buildings in the Garment district and Murray Hill areas. Although leasing activity is improving “there is still a long way for demand to materially recover,” Evercore ISI analyst Steve Sakwa wrote in a report today.” .
This is why KeyBank would provide only $37.5 million in loans for the two properties. Bengualid had purchased the two buildings 18 years ago for $77 million, per city records. Bengualid, a trial lawyer and real estate investor, won’t be discouraged though.
There are tenants who seem to be moving back to these older, Class B buildings in underrated parts of Midtown, those who still appreciate the ease of its public transit options and probably who are tired of paying steep rents in other parts of Manhattan and Dumbo.
Bengualid is betting on those tenants and on hope that there will be a revival in the area. He has bet $19 million that there will be a recovery for the long-ailing market for Class B Manhattan office space. Per Crains, he recently invested $13 million in his two properties, with revamps including new elevators and lobbies, said bond-rating firm KBRA, in its recent report. Also, Bengualid put up a $6 million down payment for his new mortgage, which lasts for 10 years and which carries a 6.1% interest rate.
Maybe, Bengualid’s confidence is already showing returns. The average office-vacancy rate is 25% for Class B space in Midtown South, but at his two buildings vacancy is at just 15 percent, and the storefronts are filled. Rents in the buildings average $40 per square foot, which is on par with the market, per KBRA. Tenants at his buildings include Therapists of New York, Empire Safe Co., and an “immersive event space” named Shift Midtown. Net operating income at the properties were up by 10% last year, to $5 million.
Bengualid did not reply to Crain’s emails seeking comment. In a June 2020 interview with HeraldPR he said office landlords would have to make a shift and adjust to the new work from home reality. “This is going to change how business is going to be done,” he had said.
