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Coasts With the Most: Top Financing Deals in NY & LA During 2020
By Adam Bonislawski December 9, 2020 10:00 am
A rendering of St. John's Terminal in New York. Photo: Oxford, Cookfox.
One Manhattan West. Image: CoStar Group
St. John's Terminal in New York. Image: CoStar Group
Sunset Las Palmas Studios. Photo: Hudson Pacific Properties
410 10th Avenue. Image: CoStar Group
City National Plaza in LA. Image: Wikicommons
711 Fifth Avenue. Image: CoStar Group
220 East 42nd Street. Image: CoStar Group
1334 York Avenue. Image: Wikimedia Commons
742-754 Fifth Avenue. Image: CoStar Group
498 Seventh Avenue. Image: CoStar Group
Since it descended upon us last winter, the coronavirus pandemic has no doubt slowed the commercial real estate scene.
Yet, the deals must go on, and, aside from a few problematic sectors like retail and hospitality, solid properties with solid sponsors have had little trouble lining up debt financing, said Eric Orenstein, a leader of the transactional department at law firm Rosenberg & Estis.
SEE ALSO: Midtown Office Building Next to Future Amazon HQ Hits Market for $33M
"It's sort of a strange thing," he said. "There's a lot of uncertainty, but then if you look at the deals that are being done, they are getting done on the same basis and underwriting that deals were getting done pre-COVID. If you have a deal that is viable, lenders aren't shying away."
Sellers, on the other hand, have been shy, said Dustin Stolly, vice chairman and co-head of capital markets debt and structured finance at Newmark. He noted that "unless there is some extraneous reason," owners are, by and large, waiting for market conditions to return to normal before testing the waters, which means much recent activity has been around refinancing.
Like Orenstein, Stolly said loans have been readily available to quality properties.
"Any building that has good institutional property ownership with large corporate tenants … finances very efficiently," he said.
Still, lenders are more wary of buildings with vacancies or tenancy issues than in the past, Stolly said.
Prior to COVID-19, "there wasn't an assumption [by lenders] that a space might not lease; it was just a matter of when and what the rent was going to be," he said. During the pandemic, though, "it has become much more challenging to finance buildings that have tenant issues or buildings that have a substantial amount of vacancy."
Looking ahead, the arrival of vaccines could help return the world to something approaching business as usual in the not-so-distant future. As the year approaches its close, though, it's worth looking back on. Commercial Observer teamed up with Reonomy to look at some of the biggest commercial real estate loans to close on properties in New York City and Los Angeles during the pandemic between March 15 and Nov. 1. Consider it a survey of what has been a very strange time for us all.
One Manhattan West
Amount: $1.8 billion
Borrower: Brookfield Properties
Lender: Deutsche Bank, Wells Fargo, Barclays Capital, Citigroup
Brokers: Direct deal
Closed: August 2020
When Brookfield Properties opened the 67-story office tower One Manhattan West in September of last year, no one had even heard of COVID-19. Fast forward 14 months and it's all anyone can talk about. That didn't prevent the real estate firm this August from landing $1.8 billion of debt at a weighted average coupon of 2.95 percent to refinance the 2.1 million-square-foot building.
The loan was underwritten by Deutsche Bank, Wells Fargo, Barclays Capital Real Estate and Citi, with $300 million structured as mezzanine debt, and $1.5 billion of the mortgage sold as commercial mortgage-backed securities, making it one of the largest single-asset, single-borrower CMBS transactions in 2020.
One Manhattan West is one of five buildings comprising Brookfield's 5.4 million-square-foot, mixed-use, Manhattan West development, which is part of the larger Hudson Yards area. LEED Gold certified, the building was designed by Skidmore, Owings & Merrill.
According to DBRS Morningstar and Moody's Investors Service, the building was 94 percent leased at the beginning of August, with law firm Skadden, Arps, Slate, Meagher & Flom LLP and accounting firm EY as its largest and second-largest tenants, respectively. Other tenants include accounting firm Accenture and the National Hockey League, which relocated last year from its former headquarters at Rockefeller Center.
St. John's Terminal
Amount: $972.6 million
Borrower: Oxford Properties and the Canadian Pension Plan Investment Board
Lender: Wells Fargo, TD Bank, J.P. Morgan
Brokers: CBRE's James Millon, Tom Traynor and P.J. Finley
Closed: May 2020
While lending during the pandemic has been tilted toward refinancings, one of the biggest and highest-profile loans to land during the age of COVID was the $972.6 million construction loan Oxford Properties and the Canadian Pension Plan Investment Board secured to build their 1.3 million-square-foot St. John's Terminal office complex.
As CO reported, Wells Fargo led the deal, with TD Bank and J.P. Morgan participating along with four other syndicate banks.
Before the coronavirus, the project had been among the hottest in town, with CO reporting that all of the major banks were "fighting to get a piece" of the deal. The outbreak did little to cool their ardor, and the development partners secured the loan at the beginning of May.
Originally the southern terminus of the High Line elevated railway, the property is located at 550 Washington Street, at the corner of Houston and West streets and next to Hudson River Park's Pier 40. Last year, Google signed a lease for the complex's full 1.3 million square feet, which it plans to use as part of its larger Hudson Square campus. The development topped out in November and is expected to be ready for the tech giant to occupy in 2022.
When complete, the property, designed by COOKFOX Architects, will be 12 stories and include a planted rooftop and terraces.
Hollywood Media Portfolio
Amount: $900 million
Borrower: Blackstone and Hudson Pacific Properties
Lender: Goldman Sachs and Barclays
Brokers: Eastdil Secured
Closed: July 2020
The film industry has been significantly impacted by the pandemic, with movie theaters all but shuttered and production work picking up to pre-COVID levels only in the past three months.
That said, people need stuff to watch. In that spirit, Goldman Sachs and Barclays announced in July that they were providing a $900 million, five-year, floating-rate loan to a Blackstone-Hudson Pacific Properties joint venture that is operating and modernizing three Hollywood movie studios and accompanying office space.
Goldman is providing 70 percent of the funding, with that portion planned for securitization in a stand-alone, commercial mortgage-backed security.
The financed properties include Sunset Bronson, Sunset Gower and Sunset Las Palmas Studios, along with 966,000 square feet of Class A office space. The Blackstone-Hudson venture also has the rights to develop an additional 1.1 million square feet of office and production facilities. Hudson, which controls a 51 percent interest in the venture, maintains and operates the assets.
Tenants in the space include Netflix, which has said it will spend more than $17 billion producing original content this year. And, while much film and television production has been on hold during the pandemic, studios, talent and unions came to an agreement in September on how to reopen the industry, which allowed a number of halted projects to get back to shooting.
Borrower: SL Green Realty Corp.
Lender: Goldman Sachs and Wells Fargo
Closed: September 2020
Pandemic or not, SL Green, Manhattan's mega-office landlord, moved ahead with its plans for 410 10th Avenue, closing in September on a $600 million construction loan that the firm said would allow it to finish its redevelopment of the 636,000-square foot office building.
Two months later, the company changed course, selling the property to 601W Companies for $953 million in one of the largest sales of a U.S. office building since the coronavirus hit. Upon announcing the deal, Brett Herschenfeld, managing director of SL Green, said in a statement that while the asset "was always intended to be held as a long-term investment," the sale would allow the company to "substantially reduce consolidated indebtedness and generate additional liquidity for share repurchases." The sale is expected to close in the fourth quarter of this year.
In any case, the $600 million loan, provided by an international consortium of banks led by Goldman Sachs and Wells Fargo Bank, remains among the more significant loans issued during the pandemic. It replaced $465 million in construction financing that SL Green secured in 2019 and was expected to fund the redevelopment project through its completion, which is still slated for the third quarter of 2021. 601W will take over the loan as part of the deal. The property was built in 1927, and was formerly known as the Master Printers Building. SL Green purchased it from the Kaufman Organization for $440 million in 2018, and signed First Republic Bank as its first tenant in April 2019 and Amazon in December 2019.
City National Plaza
Borrower: CalPERS and CWP Capital
Lender: Morgan Stanley and Goldman Sachs
Brokers: Eastdil Secured's Philip McKnight, Mark Williams and Greg Stampley
The California Public Employees' Retirement System (CalPERS) and CommonWealth Pacific Capital (CWP Capital) this March scored $550 million in commercial mortgage-backed securities debt to refinance this 2.5 million-square-foot office development at 515 South Flower Street in Los Angeles' Financial District.
As CO reported at the time, Morgan Stanley and Goldman Sachs originated the mortgage, which is a 10-year, non-recourse, interest-only loan with a 2.44 percent fixed rate. The mortgage included a $330 million senior note that was to be securitized in the Morgan Stanley-led MSC 2020-CNP single-asset, single-borrower (SASB) transaction, with the remaining $220 million set aside for future securitizations.
CalPERS and CWP Capital bought the property in 2013 for $858 million (around $330 per square foot) and have managed it as a joint venture since then. Comprising a pair of 52-story skyscrapers spanning a city block, the complex features roughly 125,000 square feet of retail and restaurant space, as well as an on-site parking garage and adjacent, 11-story garage totaling 3,273 parking spaces.
Analyzing the deal, Fitch Ratings highlighted some impacts from the pandemic, noting that tenants, including law firm Paul Hastings, had requested rent relief, while another nine tenants had started discussions with the owners about potential relief.
Since then, market conditions have continued to decline. According to a recent Cushman & Wakefield report, in Q3, new leasing activity in Downtown Los Angeles fell to its lowest total in more than a decade, with only 62,539 square feet of new leases signed during the quarter. City National Plaza was part of that mix, though, leasing 15,000 square feet to McCarthy Building Company.
Borrower: SHVO and Bilgili Development
Lender: Goldman Sachs
Brokers: JLL's Michael Tepedino, David Sitt, Robert Tonnessen, Kristen Knapp and Sophie Gaylor
Closed: March 2020
A development group led by SHVO and Bilgili Development, and including Deutsche Finance America and BLG Capital, secured a $545 million loan for this Midtown Manhattan property in mid-March, just as the pandemic was beginning to accelerate.
The loan, which was secured by JLL Capital Markets, refinanced debt from the group's purchase of the building for $937 million in September 2019. The 18-story building contains 340,024 total square feet, including 284,061 square feet of office space and 55,963 square feet of retail space. It features 124 feet of frontage along Fifth Avenue and 154 feet along East 55th Street.
The property was built in 1927, and was the original headquarters of NBC. Food and beverage company Coca-Cola bought the building in 1983, and put it up for sale last year, inking a deal to sell to Nightingale Properties, Ashkenazy Acquisition and Wafra for $907 million. A little more than a month later, SHVO and its partners bought the property from the Nightingale group for $937 million.
Much of the building's retail space has been vacant, but tenants Ralph Lauren and Breguet are both signed to leases through 2029. Last month, Business Insider reported that Spanish clothing chain Mango had sublet Ralph Lauren's 28,300-square foot space at 711 Fifth for $5 million per year, less than 20 percent of the $27 million-plus Ralph Lauren pays annually for the space.
Lender: Aareal Capital, Citi and Crédit Agricole
Good news for SL Green Realty: In June, the landlord closed a $510 million mortgage on its office building at 220 East 42nd Street, a 37-story, Art Deco tower known as The News Building, in tribute to its history as the one-time headquarters of The New York Daily News.
Provided by a lending group led by Aareal Capital, Citi and Crédit Agricole, the loan was used to repay debt on SL Green's $1.65 billion, unsecured, revolving credit facility.
SL Green purchased the building in 2003 for $265 million, a deal that followed an initial $53.5 million preferred equity investment the company made in September 2001. Occupancy is currently 97 percent with major tenants, including the Visiting Nurse Service of New York, Omnicom Group, local television station WPIX and the United Nations.
A block and a half from Grand Central Terminal, the Raymond Hood and John Mead Howells-designed building was designated as a National Historic Landmark in 1989. It also features the world's largest indoor globe, as seen in the original Superman television show and movies.
Borrower: Sotheby's
Lender: Barclays Capital
Brokers: Newmark's Dustin Stolly, Jordan Roeschlaub, Chris Kramer, Nick Scribani and Dominick Calisto
Going once, going twice, sold … a $483 million loan to auction house Sotheby's.
The company secured the five-year, floating-rate loan from Barclays in September, part of a $650 million refinancing of its Upper East Side headquarters. The new financing retired an existing $252 million loan made in October 2019 by BNP Paribas. The deal comes a little over a year after French-Israeli media mogul and art collector Patrick Drahi purchased Sotheby's for $2.7 billion, an acquisition that was announced in June 2019.
Newmark's Dustin Stolly, Jordan Roeschlaub, Chris Kramer, Nick Scribani and Dominick Calisto negotiated the deal.
Sotheby's has occupied the 10-story, 506,000-square-foot property since 1980. In addition to serving as the company's headquarters, the building hosts its North American auction salesroom, as well as an art gallery and office space. Sotheby's Wine and Sant Ambroeus Coffee Bar are located on the ground floor.
In 2000, the building was redeveloped to gut-renovate the interior and add six stories. In 2003, Sotheby's inked a sale-leaseback agreement with then-owner RFR Holding. The auction house reacquired the building in 2009, obtaining a $235 million mortgage from Bank of America.
Newmark's Stolly said that the refinance deal was started in late 2019, but was briefly put on ice after the pandemic hit. Ultimately, he said, the transaction "was well-received because of the pent-up demand for single-asset, single-borrower securitized bonds."
742-754 Fifth Avenue
Borrower: The Goodman family
Lender: New York State Common Retirement Fund
The pandemic has hit brick-and-mortar retail particularly hard, but the Goodman family was still able in March to line up $400 million from the New York State Common Retirement Fund to refinance its property at 742-754 Fifth Avenue, site of the Bergdorf Goodman department store.
The loan closed just three days after Neiman Marcus Group, which owns the Bergdorf Goodman brand, announced it was shutting down all of its stores, including its 742-754 Fifth Avenue location, due to the coronavirus. In May, Neiman Marcus entered Chapter 11 bankruptcy proceedings. e 2019.
Since then, Bergdorf's has reopened, first in June for appointment-only shopping, and then for regular shopping (with limited hours) in August.
The nine-story, 211,000-square-foot property was built in 1927 on the site of the Vanderbilt mansion.
Borrower: George Comfort & Sons, Loeb Partners Realty and J.P. Morgan Asset Management
Lender: MetLife
It was a Garment District deal that fit like a bespoke suit. In May, MetLife provided the owners of office building 498 Seventh Avenue with a $400 million loan to refinance the property.
The partnership between George Comfort & Sons, Loeb Partners Realty and J.P. Morgan Asset Management used the funds to retire roughly $181.7 million in existing commercial mortgage-backed securities originated by Deutsche Bank in April 2011. In addition to paying down this old debt, the MetLife loan provided $218.3 million in fresh bridge debt.
According to data from CoStar Group, the building is currently 100 percent leased. Its largest tenant is the health care union 1199SEIU United Healthcare Workers East and its benefit fund, which began leasing roughly 600,000 square feet in 2017. Other major tenants include freight shipping firm Transfix (which has been called the "Uber of trucking"), which occupies just over 60,000 square feet, having expanded from 30,000 square feet in April 2018; data firm CB Insights, which occupies just over 43,000 square feet; and Siemens, which leases just over 34,000 square feet.
Loeb and George Comfort purchased the building in March 1997, and made renovations that included making over the lobby, adding new windows, and upgrading the HVAC system and elevators. The 960,000-square-foot property was built in 1920.
Keywords: 1334 York Avenue, 220 East 42nd Street, 410 Tenth Avenue, 498 Seventh Avenue, 711 Fifth Avenue, 742-754 Fifth Avenue, City National Plaza, Dustin Stolly, Eric Orenstein, Newmark, One Manhattan West, Reonomy, Rosenberg & Estis, slideshow, St. John's Terminal
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