The Mazza Gallerie sold for $38 million to the highest bidder in a foreclosure auction Friday after its owner, an affiliate of New York’s Ashkenazy Acquisition Corp., defaulted on $67.1 million in loans it took out to acquire the 294,000-square-foot retail center in Northwest D.C.
Representatives for the Friendship Heights property’s lenders, affiliates of Annaly Commercial Real Estate Group Inc., cast the winning bid during an auction held outside the D.C. office of Alex Cooper Auctioneers. It drew a crowd of more than a dozen socially distanced onlookers donning personal protective equipment to watch despite the late August morning’s heat and humidity.
An undisclosed bidder conferring via mobile phone with another party ran the price up from a $26 million starting offer in a back-and-forth that went no higher than the $38 million offered by the representative for Annaly Commercial Real Estate, a subsidiary of publicly traded Annaly Capital Management (NYSE: NLY). A sole representative for Ashkenazy, Bethesda attorney Tom Helf, was in attendance but said nothing during the proceedings and declined to comment for this story.
The representative for Annaly declined to comment following the auction and referred questions to the company’s headquarters in New York, where no one was immediately available for comment.
Friday’s auction will likely kick off a period of uncertainty for Mazza Gallerie as Annaly officials consider options including a potential resale of the property once market conditions approve. A mortgage real estate investment trust, Annaly’s commercial real estate arm originates and invests in commercial mortgage loans and other types of debt, and its holdings mostly constitute retail and health care properties.
Annaly Capital held $2.5 billion in assets at the close of the second quarter, and while it did not break out those assets, D.C. represented less than 10% of its geographic concentration. Among its holdings locally, as of Dec. 31, were a multifamily property in the District and health care facilities in Gainesville and Manassas. The company has generally maintained a reasonably low profile in the D.C. region but made news two years ago with its $900 million acquisition of Bethesda-based MTGE Investment Corp., a hybrid mortgage real estate investment trust through which it inherited several health care sites.
Paul Cooper, vice president of Alex Cooper Auctioneers, reads a seven-page legal document outlining the conditions of the pending auction Friday for the Mazza Gallerie outside the auctioneer’s D.C. office.
Lawyers for Ashkenazy, which acquired Mazza Gallerie in 2017, had filed a motion with the D.C. Superior Court in June seeking to halt the prospective foreclosure of the property at 5300 Wisconsin Ave. NW. They said the District government had enacted protections requiring lenders to grant hardship deferrals on rent and mortgage payments to borrowers whose finances had been hurt by the ongoing coronavirus outbreak.
Annaly countered that the Ashkenazy affiliates, Prime Chevy Chase Asset 1 LLC and Prime Chevy Chase Mezz Borrower LLC, defaulted on their debts when the loans matured in January, before the region’s economy was affected by the pandemic or lockdown restrictions were put in place by the District. A Superior Court associate judge sided with Annaly in denying Ashkenazy’s request for a temporary restraining order.
The pandemic is just the latest in a series of challenges for the brick-and-mortar retail industry, which has faced increasing competition from online retailers operating with lower overhead costs. Ashkenazy lost several retailers over the past few years including Harriet Kassman, Williams Sonoma and Filene’s Basement, though T.J.Maxx took over that space in 2013.
The public health crisis has served to exacerbate those challenges, leading to many high-profile bankruptcies, J.Crew, Gold’s Gym, Neiman Marcus, J.C. Penney, Le Pain Quotidien, Chuck E. Cheese, New York & Co., Ann Taylor, Lane Bryant, California Pizza Kitchen, Lord & Taylor, Men’s Wearhouse and Jos. A. Bank among them.
The growing list of retail bankruptcies also includes department store Neiman Marcus, a Mazza Gallerie anchor that sought Chapter 11 bankruptcy protection in May and whose lease there is currently being marketed for sale, and Lord & Taylor, whose nearby Chevy Chase store is slated to close as that storied department store company shuts down its remaining stores.