03/25/2011

3 Insurers Team Up on Big NY Office Loan

MetLife, Prudential Mortgage and New York Life have won a $700 million financing assignment from Boston Properties on the office building at 601 Lexington Avenue in Midtown Manhattan.

Under the “club deal,” the insurers will co-originate the loan. MetLife's share will be somewhat larger than the other two.

This is the second insurer team-up this month on a big New York office loan. MetLife and Pacific Life have agreed to write a $500 million fixed-rate loan for an SL Green partnership on the building at 919 Third Avenue.

Boston Properties' 10-year loan will enable the REIT to take a huge chunk of cash out of 601 Lexington, since it will be retiring $450 million of existing debt scheduled to mature in May.

Some observers thought securitization programs stood a good chance of winning the coveted assignment, because insurers usually restrict their bidding to loans of about $250 million in order to limit exposure to risks associated with any one property. But MetLife, Pru and New York Life got around that restriction by joining forces.

Club deals are rare, because they can be complicated to arrange and can take longer to close. If they increase in frequency, that would be bad news for CMBS lenders, which are depending on winning giant refinancing assignments to bulk up their activity this year.

The loan on 601 Lexington was attractive to insurers because of the property's solid fundamentals and the relatively low leverage. The 1.6 million-square-foot building is virtually fully occupied.

Boston Properties lined up a $525 million loan in 2001 from Deutsche Bank. The package was made up of $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%. The rate on the new loan is lower, but the exact rate is unknown.

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.

The loan on 919 Third Avenue will also enable the borrower to take significant cash out of the property. SL Green and its partner, New York State Teachers, will use the proceeds to retire a $220 million securitized mortgage that was originated in 2001 and matures in August. MetLife and Pacific Life will each fund half of the loan, whose term is likely to be seven or 10 years. The balance will represent less than half of the property's value, which made the assignment a natural fit for conservative insurance companies.

The 1.4 million-sf building, on the southeast corner of East 56th Street, is fully occupied. Tenants include law firms Debevoise & Plimpton and Schulte Roth, as well as BNP Paribas and Draftfcb, a division of Interpublic Group of Cos.

The building, which was constructed in 1971, was formerly owned solely by Reckson Associates Realty of Uniondale, N.Y. In 2001, Reckson sold a 49% stake to New York State Teachers. It also lined up the existing mortgage — which had an original face amount of $250 million — from Goldman Sachs, which securitized the loan via a $709.6 million deal (GS Mortgage Securities Corp. II, 2001-GL III).

In 2007, SL Green acquired Reckson through a $4 billion takeover, which gave it control of Reckson's majority stake in 919 Third Avenue.

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