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Manhattan Building Purchased Online Shows Boon for Bondholders

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Dec. 9 (Bloomberg) -- A half-empty building in Manhattan was sold at an Internet auction for within $1 million of the property’s value at the height of the boom in 2007, underscoring investors’ faith in the real estate recovery.

The six-story office tower at 246 Fifth Ave. was purchased for $19 million last week by HH Realty Equities, a New York-based owner and developer, Ariel Akkad, a principal at the firm, said in a telephone interview. The sale was conducted on LLC, an online real estate broker.

The building’s previous owner defaulted on $14.5 million in debt that was part of a $3.6 billion commercial-mortgage backed securities deal sold during the market’s peak in 2007. The property’s value, which stood at $20 million in 2007, fell as low as $8.4 million in September 2012, according to data compiled by Bloomberg. Higher prices are a boon for bondholders, enabling them to recoup more cash on soured loans.

“If this building is back to the peak that means everything in the city is back to the peak,” said Ben Thypin, director of market analysis for Real Capital Analytics, a New York-based property research firm. “This particular property needs a lot of work.”

HH Realty may convert the office building into residential or hotel space, Akkad said. The property, which is currently 40 percent leased, is occupied by companies renting small spaces, according to loan-servicing documents.

Neighborhood Transformation

The acquisition was financed by Starwood Property Trust. Iron Hound Management, a firm specializing in restructuring, advised HH Realty on the sale.

The neighborhood surrounding 246 Fifth Ave., two blocks from Madison Square Park, has undergone a transformation over the past couple of years, according to Real Capital’s Thypin. It was considered a rental area prior to the successful construction of condominiums in the area, he said.

Commercial real estate values in the U.S. have recovered 70 percent of their losses since bottoming in December 2009, boosted by demand for the best buildings in the largest cities, according to the Moody’s/RCA Commercial Property Price index. The climb had slowed earlier this year amid a rise in mortgage interest rates as the Federal Reserve prepares to reduce stimulus measures, property researcher Green Street Advisors Inc. said in a Dec. 5 report.

To contact the reporter on this story: Sarah Mulholland in New York at

To contact the editor responsible for this story: Alan Goldstein at