Leverage Cut on Vornado Project in Boston

After significantly reducing the amount of leverage originally planned, Bank of Ireland and Bank of America are close to wrapping up a $360 million syndicated loan for a mixed-use tower that a Vornado Realty partnership is building in Boston.

The four-year loan, which will help finance the construction of the 1.5 million-square-foot building, at One Franklin Street, is $186 million smaller than the Vornado group initially sought. As a result, the leverage ratio for the $700 million project is only 51%, down from the originally intended 76%. The development group was forced to put up more equity because of the tighter credit market.

Bank of Ireland and BofA took the assignment on a best-efforts basis, meaning that they committed to fund part of the senior loan facility on the condition that they line up additional lenders for the rest.

The size and terms of the loan changed during the lengthy syndication effort, reflecting the tough market conditions. The amount of proceeds was reduced at least twice, to reduce the leverage. And the rate, initially pegged at 225 bp over Libor, ended up at 275 bp.

Bank of Ireland committed $135 million, and BofA pledged $75 million. Rounding out the syndicate are Helaba Bank ($75 million), HBOS ($40 million) and Capital One ($35 million). The loan is scheduled to close Nov. 15.

The members of the Vornado partnership boosted their equity commitments in proportion to their stakes in the project, which was originally projected to cost $719.4 million. Vornado, a New York REIT, is now kicking in $170 million. Special Situation Property Fund, an open-end vehicle run by J.P. Morgan Investment, is supplying $119 million. New York developer Gale International and Mack-Cali Realty of Edison, N.J., are contributing the remaining $51 million.

The 39-story property, bounded by Franklin, Washington, Summer and Hawley Streets, will encompass 540,000 sf of office space, 297,000 sf of retail space, 225,000 sf of hotel space, 136 residential condominium units and a five-level underground garage with at least 300 spaces. The Vornado team has pre-leased a portion of the office space. Construction, which has already started, is scheduled to finish in three years. V

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