Donald Trump’s prized Manhattan office tower at 40 Wall St. is facing a significant challenge as the office market experiences its most severe downturn since the global financial crisis.
Trump's investment in the landmark 63-story tower, located less than a block away from the New York Stock Exchange, has long been regarded as one of his most astute deals. He acquired a long-term lease on the tower for less than $5 million in 1995, during a period when New York’s commercial-property market was struggling. As the market rebounded, the value of the property soared many times over. It is possibly his most valuable single piece of property.
However, like thousands of other U.S. office buildings, 40 Wall is now facing challenges due to weakening office demand. The tower’s vacancy rate has risen to 21%, compared to about 5% in 2015. One of its largest tenants, drugstore chain Duane Reade, recently vacated its office and retail space in the building, leaving 23,000 square feet empty on the ground floor.
Trump faces a significant financial hurdle next year, as the $120.5 million mortgage on the building matures in July. If the mortgage were to be refinanced today, real-estate finance analysts estimate that the rate would likely be above 7%, roughly double the 3.7% rate Trump currently pays.
Bond-ratings firms have taken note of these challenges. Fitch Ratings recently 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 when it is likely to face higher debt service.
Despite assurances from Trump Organization executives that 40 Wall isn’t in financial peril, the building’s association with the Trump brand could further complicate its future. Trump's popularity is low in New York, and some tenants might be reluctant to locate in one of his properties for fear of alienating employees or customers.
The value of 40 Wall is critical to Trump’s ability to refinance its $120 million in debt next year. Some commercial property appraisers value the building between $120 million and $200 million, depending on the approach used.
As Trump continues to appeal a lawsuit judgment against him, which includes a ban on running any business in New York, including the one that owns 40 Wall, the building's future remains uncertain.