06/22/2012

Pru Gets Breathing Room on 11 Times Square

A Prudential Real Estate Investors partnership has substantially paid down its $714 million construction loan on the office building at 11 Times Square in Manhattan in return for an extension of the maturity date.

In conjunction with the modification, lead lender Bank of America left the lending syndicate, selling its position to New York Life.

The 1 million-square-foot tower, which opened a year ago, is less than 60% occupied and was unable to support a new loan of the same size. That forced Pru and its partner, SJP Properties of Parsippany, N.J., into negotiations with the syndicate on the existing loan, which reached its final maturity in March.

The Pru partnership made a principal payment of roughly $200 million, reducing the loan balance to slightly more than $500 million. In turn, the lending syndicate, which also includes PNC Bank, Helaba Bank, MetLife, Wells Fargo and WestImmo, extended the loan’s term for two years and provided an option for an additional one-year extension.

The agreement, reached and completed within the past couple of weeks, was seen as benefiting the lenders and the borrower. The syndicate now holds a loan with significantly lower leverage. And the Pru team, which had already plowed several hundred million dollars of equity into the property, gets breathing room to lease up vacant space. The Pru partnership “bought the ability to move forward the way they want to,” said one person familiar with the negotiations.

BofA, which co-led the syndicate with PNC, held a position of well more than $100 million before the paydown, according to market sources. It’s unclear why BofA decided to sell its piece of the loan, but the bank has been shrinking its commercial real estate portfolio. The lenders with the largest chunks now are New York Life, MetLife and Helaba.

The 40-story tower is at 640 Eighth Avenue, between West 41st Street and West 42nd Street, directly across from the Port Authority Bus Terminal.

Pru and SJP, which undertook the $1.2 billion project on a speculative basis, lined up the construction financing in 2007. The loan had a four-year term and a one-year extension option that was exercised. The coupon originally was 145 bp over one-month Libor, but the spread jumped up to 250 bp after the borrower violated a loan covenant in 2009. The spread climbed to 290 bp in March 2010 and 350 bp a year later.

The Pru partnership lined up Proskauer Rose as the building’s lead tenant. The law firm leases 14 floors encompassing more than 400,000 sf. But more than half of the building remains vacant, partly because of the abundance of available office space in the Times Square submarket. However, about a month ago, Russia-based restaurant group Global Food International leased 25,000 sf.

Earlier this year, the Pru partnership sought approval to divide the building into two office condominiums. Doing so would give it the option of selling one or both parts at some point.

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