A construction accident has landed $231m of securitized loans backing The Sapir Organization’s 260 and 261 Madison Avenue on the servicer watchlist.
On the morning of 31 May, a 30,000-pound commercial air conditioner unit plunged 30 stories to the street when workers attempted to hoist it to a rooftop mechanical room atop 261 Madison.
The subsequent damage has led master servicer Wells Fargo to place the loans on its servicer watchlist. They consist of two pari passu notes: A $105m A-2 note held in Wells Fargo Commercial Mortgage Trust (COMM) 2012-CCRE2 and a $126m A-1 note held in COMM 2012-CCRE3, according to Trepp.
As the equipment fell, it hit the building, ripping chunks of concrete, glass and steel from its facade, and damaging several floors within the building. Upon impact at street level, at least 10 people at the scene suffered minor injuries and a water main burst. A sidewalk shed was erected at neighboring 260 Madison Avenue as a precaution.
Repairs are underway on the partially-occupied office building and some tenants have temporarily vacated their spaces. But despite the cautionary move from Wells Fargo, “the borrower doesn’t foresee any issues with keeping current on the loan,” Trepp analyst Sean Barrie told Real Estate Capital.
There are seven main criteria that could lead a master servicer to place a loan on their watchlist, one of them being “property condition issues,” according to guidelines from the CRE Finance Council. The others are: financial conditions, borrower issues, lease rollover, tenant issues and vacancy, maturity, other (servicer discretion), and returned loans.
Construction accidents are bound to happen, especially in big cities like New York. An ad executive was crushed to death by an elevator in 2011; and a crane now infamously dangled from the One57 luxury high-rise during Hurricane Sandy in 2012.