850 3rd Ave to sell.

The former VMS-owned office building at 850 Third Avenue is scheduled to be sold at auction on Feb. 4. The foreclosure auction would clear the way for mortgagor, Prudential Insurance Company, to take title to the property.

Since the low bidder would have to top the lien amount of $92.3 million, plus costs and interest, the auction is merely a formality to pass title. Experts say Prudential will undoubtedly either keep the property and run it themselves or make a private deal later on.

Peter Hauspurg, president of Eastern Consolidated Properties which acts as advisor to interested buyers, said Prudential is merely going through the formality of taking the title. At close to $200 a square foot, he said, the property is just not worth it.

Citing the deal at 10 East 53rd Street, a 350,000 square foot building that recently sold for $160 per square foot, Hauspurg noted the price was "for a better building in a better location."

Abraham Wallach, senior vice president of First Capital Advisors, said at $92 million the cost would come out to approximately $184 per square foot for the 533,710 square foot office building."It is not a bad number in this market looking at bricks and mortar," he said.

The problem is that the real value is only a function of net operating income, the physical condition, and current and approaching vacancies, he added. Additionally, he said, if a lease is coming due this year with substantial escalations, a renegotiation will probably lead to a rental less than what is being paid now.

The 21-story steel and concrete building was a classic 1962 wedding cake design with varying floor plates. But the 32-year old building is showing its age. One of the two refrigeration machines was recently overhauled and windows are undergoing refurbishment.

"Money for refurbishment, brokerage commissions and dollars for tenant improvement will bring the actual number [cost] up," noted Wallach. "Buying it at $172 is a good number but it's only the number to get into the game. After you fix it up, make tenant improvements and pay interest on the money it will end up being over $250 per foot and it's too much to be paying."

Wilhelm A. Rosenberg, president and CEO of Mega Invest International, strategic investment consultants for European equity sources said he is looking for deals but not looking for deals like this. "In one word," he said, "the building is a typical dinosaur." Rosenberg said the average $20 per square foot at a midtown location for a building that is suffering from economical deterioration is way too high for that market.

"There are tremendous expenses, and you are left over with an NOI of $452,000 on an effective gross income of $12.3 million," Rosenberg explained. "It shows it is so repair and care intensive -- that is why I call it a dinosaur. It is an economically distressed property."

Rosenberg believes the vacancy factor of less than 25 percent is very good but taking in the other factors there is little potential left to increase the bottom line of the building. A 40 percent rollover in the next five years of the existing 37 leases would make it impossible to get financing, he added, saying: "Foreign equity sources would never ever look at a deal like this."

Wallach believes that Prudential will not selling it quickly. "It's unlikely they will slip it out at some discount," he explained. "To sell it now they would need to give a big discount." Referee Arthur Gerwin said he expects the event, scheduled for the rotunda of the Manhattan County Courthouse at 60 Center Street at 9:30 a.m. on Feb. 4, to be a "typical public auction." Potential buyers should be prepared with a certified check for a deposit. "If somebody is a real serious bidder and wants the terms of sale they can contact me," Gerwin added.

Wallach says lenders have not really dropped prices yet to reflect market conditions. "Everyone is holding on hoping values will increase and they won't have to take the big hits," he said. He says however, that the city's marketplace has finally hit the bottom. "We've been there a couple of months and the issue is now how long will we stay there until the free rent wears off and the vacancies are absorbed."