12/17/2010

REIT Seeks $700 Million Loan on NY Trophy

Boston Properties has quietly begun shopping for a $700 million loan on the trophy office building at 601 Lexington Avenue in Midtown Manhattan.

The Boston REIT, led by developer and publisher Mort Zuckerman, will use most of the proceeds to retire a decade-old debt package on the 1.6 million-square-foot building. But it will still be able to take more than $200 million of cash out of the property, formerly known as Citigroup Center.

The existing debt matures in May. The buzz is that the REIT is unlikely to hire a broker to line up a loan and will instead conduct discussions directly with lenders. Market players said the REIT has already held a few preliminary conversations with balance-sheet lenders over the past several weeks. Securitization shops are likely to chase the assignment as well. But they face stiff competition from insurers and foreign banks, which have been aggressively prowling for loans on trophy Manhattan buildings.

At the top of the list of candidates is Bank of China, which last year decided to significantly expand its origination of commercial mortgages in the U.S. The bank, backed by the government of China, has since bid aggressively to land several large loans, including an $800 million mortgage on the 1.8 million-sf skyscraper at 245 Park Avenue one of Manhattan's top office buildings.

The building at 601 Lexington Avenue is virtually fully occupied. In October, Boston Properties signed British law firm Freshfields Bruckhaus to a 108,000-sf lease.

Boston Properties lined up a $525 million loan on 601 Lexington Avenue in 2001 from Deutsche Bank. The package contained $395 million of senior debt that was securitized via two transactions, and $130 million of mezzanine debt that was divided into two tranches. The debt package has a current balance of roughly $450 million. The blended coupon is 7.2%. That's above prevailing rates, so Boston Properties should be able to lower its borrowing rate.

The 59-story tower, which dropped the Citigroup Center name in 2008, stretches from East 53rd Street to East 54th Street, between Lexington Avenue and Third Avenue. The collateral for the existing loan includes most of the space in an adjacent six-story building with office and retail space.

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