09/21/2012

3 Single-Borrower CMBS Deals Join Pipeline

Commercial MBS shops have landed three major fixed-rate lending assignments, which will result in separate single-borrower securitizations.

Deutsche Bank, Goldman Sachs, UBS and Bank of China will team up to write a $940 million mortgage for Vornado Realty and Donald Trump on the office building at 1290 Avenue of the Americas in Midtown Manhattan.

Citigroup and RBS will originate a $390 million loan to finance Vornado’s acquisition of a prime block of retail space at 666 Fifth Avenue in Midtown Manhattan.

And Goldman has snagged a $300 million loan to General Growth Properties on the high-end Bridgewater Commons mall in Bridgewater, N.J.

The assignments reflect an upsurge in lending by commercial MBS programs amid a powerful bond rally that has driven down the cost of capital, making them more competitive with balance-sheet lenders such as insurance companies. At the same time, S&P’s new ratings methodology is encouraging some lenders to pursue large loans more aggressively (see articles on Page 1).

New York-based Vornado and Trump originally sought a low-leverage, short-term loan of about $600 million to refinance the 2.1 million-square-foot building at 1290 Avenue of the Americas, between West 52st and West 52nd Streets. But as borrowing costs fell with the CMBS rally, the duo decided to significantly increase the size of the loan and switch to a 10-year term with a fixed rate.

Deutsche, Goldman and UBS will securitize their portions of the loan in a stand-alone CMBS deal that is expected to come to market in November. Bank of China will probably include its portion as well. If so, that will mark the first time the giant Chinese lender participates in the CMBS market.

The Vornado team will use some of the proceeds to retire $412 million of existing debt.

The 43-story tower, valued at up to $2 billion, was built in 1963 and renovated in 1996. Vornado, a New York REIT, holds a 70% stake, while Trump owns the remaining 30%. The occupancy rate is 97%. AXA Equitable leases 423,000 sf until 2023. Other tenants include Bryan Cave, Cushman & Wakefield, Gleacher & Co., Microsoft, Morrison & Foerster and Warner Music. Rents average $69.07/sf. There is 58,000 sf of retail space on the ground floor.

Citi and RBS plan to securitize their 10-year mortgage on the retail space at 666 Fifth Avenue by yearend. Vornado has agreed to buy the 114,000 sf of retail space for $707.8 million. The space is fully leased to Japanese retailer Uniqlo, clothier Hollister and watchmaker Swatch. The building, between West 52nd and West 53rd Streets, is in one of the top retail districts in the world, where asking rents average $2,500/sf. The upper floors of the 41-story building encompass about 1.4 million sf of office space.

Goldman’s 10-year loan on Bridgewater Commons is an example of a CMBS shop moving into territory typically dominated by insurers — trophy properties financed with loans of $50 million to $400 million.

Goldman offered to price the loan at about 150 bp over Treasurys, or less than 3.5%, sources said. That rate was too low for insurance companies to match.

Chicago-based General Growth will use some of the loan proceeds to retire a $200 million loan that Goldman wrote in 2003. The bank securitized the senior $117 million portion via a $1.6 billion deal (GS Mortgage Securities Corp. II, 2003-C1).

The 994,000-sf Bridgewater Commons mall, at the juncture of Routes 22, 202 and 206, was built in 1988 and renovated in 1997, 2006 and 2008. The anchors are Bloomingdale’s, Lord & Taylor and Macy’s.

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