Deutsche Backing Diamond District Project

Deutsche Bank is working to line up as much as $400 million of debt to finance an office building that Gary Barnett’s Extell Development has started constructing in Manhattan’s Diamond District.

Deutsche has agreed to fund $60 million itself, subject to its ability to syndicate the rest to other lenders. It will meet with prospective syndicate partners next week.

Using its own capital and money raised from partners, New York-based Extell is already far along in the construction of the 745,000-square-foot building, called International Gem Tower. Construction costs are estimated at $750 million to $800 million. The property, at 44 West 47th Street, between Fifth and Sixth Avenues, is scheduled to be completed later this year.

The proposed floating-rate financing package would consist of a $300 million senior loan and up to $100 million of subordinate debt. The term would be two years, with a one-year extension option.

Extell has divided the lower 20 floors of the 34-story building into condominiums that are being marketed to firms in the jewelry industry. It will retain ownership of the upper floors, which will be leased to a broader mix of tenants. Each of the building’s two portions will have its own entrance.

According to people familiar with Deutsche’s game plan, a specified percentage of the condo units would have to be sold before the debt package is funded. It’s unclear what that percentage is, but Extell has said buyers for about two-thirds of the condo space have already been lined up. It has managed to lure a number of higher-profile companies, including the Gemological Institute of America.

The financing assignment has some attractions for lenders. For one thing, the leverage is relatively low, and Extell has put up a significant amount of capital. Also, to the degree that Extell lines up buyers for the condos, the risk will be mitigated. Still, large-scale projects that aren’t heavily pre-leased or pre-sold remain rare because of the general economic uncertainty.

The building’s features will include a stone-and-glass lobby, underground parking, a fitness center and a restaurant.

International Gem Tower isn’t Extell’s only significant project under way in Manhattan. The company is also developing the tallest residential building in the city, at 157 West 57th Street, across from Carnegie Hall. The 90-story tower will encompass a 210-room hotel on the lower 30 floors, topped by 135 ultra-luxury condominiums. The 11,000-sf penthouse sold a month ago for $90 million — billed as a record for residential space in New York.

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