The Middletown Press (Middletown, CT)
‘We decided to walk’
Empire State Building owner drops Connecticut office complex
With occupancy lagging, the owner of the Empire State Building is transferring its MerrittView office building in Norwalk to a mortgage lender.
In its annual report for 2021, Empire State Realty Trust disclosed plans to relinquish the 383 Main Ave. building perched on the Merritt Parkway. According to the report, the company determined the cost of carrying the property exceeded its current value and cited what it called “challenging fundamentals” of the Norwalk office market heading into this year.
“That's what it came down to with MerrittView and Norwalk — we said, ‘look, we have a major, multi-million-dollar commitment on this asset going forward in a market that's poor,'” Empire State Realty CEO Tony Malkin said during a February conference call with investment analysts. “Better for us to put that capital elsewhere — and we decided to walk from the property.”
Empire State Realty representatives did not respond to questions about the decision to relinquish the property.
As of March, MerrittView was offering annual rent of $29.50 per square foot, according
to a Newmark listing, nearly $5 below what landlords were seeking entering this year for the top office buildings in Norwalk and surrounding towns.
MerrittView lost its biggest tenant in 2019 when Reed Exhibitions served notice of plans to move its North American headquarters to the nearby Merritt 7 Office Park.
Empire State Realty acquired MerrittView in 1994 for $15.2 million, later adding the sprawling First Stamford
Place complex just off Interstate 95 in Stamford. The company also owns the nearby Metro Center building adjacent to the Stamford Transportation Center, and a pair of retail properties on Main Street in Westport.
Empire State Realty indicated it ceased making payments last November on a $30 million mortgage secured by MerrittView, but gave no indication whether it had been under any imminent threat of a foreclosure action at the time.
Empire State Realty took a $7.7 million charge against earnings on the MerrittView transaction, representing more than half of the net loss it absorbed on the year.
Commercial real estate loan delinquency rates peaked in the final three months of 2020, according to Trepp. Problem loans constituted 8.8 percent of all office loans outstanding at the end of last year in New England, far below the rates in New York, New Jersey, Pennsylvania and other
Middle-Atlantic states tracked by Trepp.
At just under 260,000 square feet of space, MerrittView is the sixth-largest office building in Norwalk. At the end of last year, 70 percent of the offices were available for either direct leases or on sublet deals, according to commercial real estate broker Choyce Peterson.
No other office building in the Empire State Realty portfolio had an occupancy rate below 70 percent, according to the company's annual report filed in February with the U.S. Securities & Exchange Commission.
While hybrid working continues to dim office demand during the COVID-19 pandemic, some real estate investors continue to bet on a recovery.
Last year, Building & Land Technology netted $235 million from the Caret Ventures affiliate of New York City-based Safehold for the tandem office buildings it owned at 200 Elm St. and 695 E. Main St. in Stamford. NBA superstar Kevin Durant is among Caret investors, according to a Safehold disclosure two months ago.
Stamford and Norwalk are in the midst of apartment booms that could make the cities more attractive to office employers if demand bounces back. BLT has begun leasing the third and final building in its Curb complex just north of the Merritt Parkway, where it is planning the far larger North 7 district on Glover Avenue.
Last November, developer F.D. Rich flipped the newly constructed Harbourside SoNo apartments in South Norwalk for $55 million. Buyer Timberline Real Estate Ventures, which has its main office in Rye, N.Y., owns apartments from coast to coast, including the ReNew Danbury complex in Danbury.