Vornado Seeks $550 Million Apartment Loan

A Vornado Realty partnership is seeking about $550 million of debt on the massive Independence Plaza apartment complex in Lower Manhattan.

Vornado acquired a 58.75% stake in the property last month. Stellar Management owns the remaining interest. Westbrook Partners and Rockpoint Group exited the ownership group under the recapitalization, which valued the complex at $844.8 million.

Now Vornado and Stellar, both of New York, are looking to line up a new mortgage, part of which will be used to pay off the $329.2 million of outstanding debt on the 1,328-unit property.

The partnership’s advisor, Eastdil Secured, hasn’t yet formally started the marketing process. But the buzz is that the Vornado team will solicit fixed- and floating-rate bids for a mortgage with a term of five or seven years. The loan-to-value ratio would be 65% at the projected loan size.

The complex consists of three 39-story towers, at 40 Harrison Street, 80 North Moore Street and 310 Greenwich Street in the Tribeca district, a half-dozen blocks north of the World Trade Center site. It was built as luxury housing in 1976 by developer Jerry Belson. The property initially struggled, partly because the area lacked amenities for residents. Belson eventually placed it in New York State’s Mitchell-Lama program, under which owners offer below-market rents to middle-income tenants in return for tax breaks and other incentives.

Stellar and Westbrook’s $1.25 billion Westbrook Real Estate Partners 4 fund bought the complex in 2003, as those subsidies expired, and raised rents to market levels as leases rolled over. That same year, several executives spun out of New York-based Westbrook to form Boston-based Rockpoint, resulting in executives at both firms holding an ownership interest in the Westbrook fund.

In 2006, the Stellar partnership lined up a $575 million debt package from Deutsche Bank. It consisted of a $236 million A-note, a $189 million B-note and $150 million of mezzanine debt. Deutsche securitized the A-note and $29 million of the B-note via a $3 billion pooled deal (COMM, 2006-FL12). The rest of the B-note and the mezzanine debt were placed with high-yield investors.

In 2011, Vornado acquired a 51% interest in the mezzanine debt for $45 million and a warrant to purchase 25% of the equity for $1 million. Last month, Vornado acquired a 33.75% stake in the ownership group for $160 million and exercised its warrant, gaining an additional 25% interest. As part of the transaction, Vornado converted its mezzanine-debt position to preferred equity.

The remaining balance of the floating-rate debt package arranged by Deutsche has been reduced to $329.2 million. The debt was originally scheduled to mature in August 2011, after the exercise of extension options. But the maturity date was extended for two years as part of a modification.

Residential and retail construction over the past decade has made the neighborhood around Independence Plaza more attractive to residents. The complex’s occupancy rate is roughly 98%. The property includes about 55,000 square feet of retail space and more than 500 parking spaces.

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