10/26/2012

Deka, HSBC to Fund Recap of 1411 Broadway

Deka Bank and HSBC have agreed to write a $375 million fixed-rate mortgage on the office building at 1411 Broadway in Midtown Manhattan.

The seven-year loan, which is expected to close this week, comes in conjunction with a recapitalization of the 1.1 million-square-foot property, known as the World Apparel Center. Fund shop Blackstone is selling its 49.9% interest to Ivanhoe Cambridge, the real estate unit of Canadian pension-fund advisor Caisse de Depot et Placement du Quebec. Swig Co. of San Francisco is retaining the majority interest.

Ivanhoe’s purchase values the building at $735 million. That puts the loan-to-value ratio at a skimpy 51%. Eastdil Secured brokered the mortgage for Swig and Ivanhoe. Deka and HSBC each committed to fund half of the loan, a portion of which could be syndicated.

A little more than half of the proceeds will go toward retiring the existing $203.5 million fixed-rate mortgage. That 10-year loan, which had an original balance of $219 million, was written in 2004 by the team of Morgan Stanley, Lehman Brothers and J.P. Morgan. The lenders carved up and securitized the 5.5% loan via four deals (J.P. Morgan Chase Commercial Mortgage Securities Corp., 2004-LN2; Morgan Stanley Capital I Trust, 2004-IQ8; Bear Stearns Commercial Mortgage Securities Trust, 2004-PWR5; and LB-UBS Commercial Mortgage Trust, 2004-C7).

The 40-story tower sits on the block bounded by Broadway, Seventh Avenue, West 39th Street and West 40th Street. It was 89.4% leased as of August, according to CoStar. Many tenants are connected to the fashion industry, including Jones New York (356,000 sf through 2025), Danskin and Levi Strauss. Also, J.P. Morgan leases 120,000 sf.

Swig developed the building in 1970 through a partnership with the Weiler family of New York. In 1997, Trizec Properties acquired the family’s interest. New York-based Blackstone assumed Trizec’s stake in 2006 through its $7.2 billion takeover of the Chicago REIT.

The building was 98% occupied when the current loan was originated in 2004, but its performance slipped during the downturn. Net operating income had fallen to $17.9 million in 2010, from $31.8 million in 2004. However, income rebounded to $23.3 million last year.

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