The Office-Market Meltdown Comes for Trump’s Prized Wall Street Building
Donald Trump’s prized Manhattan office tower at 40 Wall St. is getting swept up by the worst storm to hit the office market since the global financial crisis.
His investment in the landmark 63-story tower, less than a block away from the New York Stock Exchange, has long been considered one of his shrewdest deals. Trump paid less than $5 million for a long-term lease on the tower in 1995, when New York’s commercial-property market was struggling. Within a few years, the property soared many times in value as the market rebounded. It is possibly his most valuable single piece of property.
But like thousands of other U.S. office buildings, 40 Wall is now under duress because of weakening office demand. The tower’s vacancy rate has risen to 21%, compared with about 5% in 2015. Drugstore chain Duane Reade, one of 40 Wall’s largest tenants, recently vacated its office and retail space in the building, leaving 23,000 square feet empty on the ground floor.
Trump faces a bigger reckoning for the building next year, when its $120.5 million mortgage matures in July. He may well have to refinance it at considerably more than what he is paying now. If the mortgage were refinanced today, real-estate finance analysts say, the rate would likely be above 7%. That would be roughly double the 3.7% rate Trump pays today.
Bond-ratings firms have taken notice. Fitch Ratings last month downgraded four tranches of a commercial-mortgage-backed-securities issue that includes the debt on 40 Wall. The firm has expressed concern about the building’s declining performance at a time that it will likely face higher debt service.
The downgrade “incorporates a higher probability of default” of 40 Wall, Fitch said.
Trump Organization executives have said that 40 Wall isn’t in financial peril, noting that it is current on its mortgage payments. “It’s a great building,” the former president said in a deposition last year for the civil fraud lawsuit brought against him by New York Attorney General Letitia James. Comparing the building to the Mona Lisa, Trump said the tower’s value is enhanced because “there are people that would do anything” to own it.
Trump maintained in the deposition that 40 Wall was worth more than $530 million. He added that because of the smaller sizes of its floors, it would be a good candidate to convert from office use into apartments.
But there is little Trump can do to stem the mounting distress in the U.S. office market, which has been intensifying as more companies accept hybrid work and reduce their demand for office space.
The office meltdown is reaching new heights as defaults and other signs of distress reach historic levels. With vacancy rates at record highs and hundreds of millions of dollars worth of debt coming due in the coming years, the prospect of significant losses is sending tremors throughout the financial system.
A slowdown in New York’s financial district also doesn’t bode well. The downtown Manhattan availability rate—which includes vacancy and space coming on the market in the next 12 months—increased to 21.3% in the first quarter, compared with 10.3% in early 2020, according to Colliers. Average asking rents have fallen to about $57 a square foot from more than $65.
Even Trump acknowledged in his deposition last year that the New York office market has “unfortunately gone to hell.”
40 Wall faces challenges because of the Trump brand, too. The former president’s popularity is low in New York and some tenants might not want to locate in one of his properties for fear of alienating employees or customers.
“Some people don’t want to deal with the [Trump] baggage,” said Michael Thom, a partner at Obermayer, a law firm with a large real-estate practice. “At a time like this, when the office market is struggling, it doesn’t help.”
The art deco skyscraper with French gothic features has had a colorful history since it was developed in the late 1920s. At the time, both 40 Wall and the Chrysler Building were under construction and vying to be the world’s tallest building. The Chrysler Building won that competition—after it hoisted a 185-foot spire that the owners had kept hidden inside until the last moment.
In the 1980s, 40 Wall made headlines again when a congressional investigation revealed that it was one of four Manhattan properties that were secretly acquired by then Philippines President Ferdinand Marcos. After Marcos was deposed and he lost his rights to the properties, numerous New York developers battled over who would take them over.
Trump purchased the ground lease to 40 Wall, which allows him to control the property for more than a century, as he was emerging from his own financial crisis of the early 1990s. He was forced to sell major assets such as New York’s Plaza Hotel and put some casinos into bankruptcy proceedings. His success at attracting a large number of tenants to 40 Wall provided an enormous boost as he rebuilt his real-estate empire.
But the magnitude of the property’s success remains unclear. In her lawsuit against Trump, Attorney General James alleged that 40 Wall St. was among the properties that Trump fraudulently overvalued in an effort to obtain larger mortgages than he would have been able to get with more accurate valuations.
New York Judge Arthur Engoron agreed. In his rulings he has cited evidence of numerous inaccuracies and manipulations involving 40 Wall’s income and value by the Trump Organization to obtain the debt that is currently on the building.
Trump faces a $454 million judgment against him in the lawsuit as well as an order that he be barred for three years from running any business in New York, including the one that owns 40 Wall. For now, he continues to operate the building as he appeals the verdict.
The building is home to scores of companies, mostly small firms in finance or professional services taking less than 10,000 square feet. Tenants include Country-Wide Insurance and the Girl Scouts of Greater New York.
The New York Girl Scouts organization signed a lease in 2014, before Trump articulated many of his controversial views and policies. Now, the group’s chief executive says she isn’t happy about being associated with Trump, whose name is on the building in big gold letters, and his “disruptive” news conferences held in the lobby after nearby court appearances.
“There’s a lot of disalignment between what we stand for and the brand on the building,” said Meridith Maskara, CEO of the New York branch.
The value of 40 Wall is critical to Trump’s ability to refinance its $120 million in debt next year. In an interview Monday, Eric Trump, a Trump Organization executive vice president and son of the former president, said that replacing the tower today would cost many, many multiples of that amount. “Just about any real-estate developer in New York would love to be in the position we’re in,” he said.
But some commercial property appraisers rely more on the income of properties when determining a value. Using this approach, they say 40 Wall is worth between $120 million and $200 million, depending on whether a bullish or bearish multiple is applied to its annual operating income of about $12.8 million.
The few lenders willing to make office loans today typically require that a building’s value be roughly double the amount of the loan.
“We are seeing office loans that are performing much better than 40 Wall having trouble getting refinanced,” said Melissa Che, a Fitch senior director.
Write to Peter Grant at [email protected]