02/01/2013

Starwood in Line to Finance Big NY Project

Starwood Property is poised to provide about $450 million of debt for the long-delayed construction of a large residential tower on Manhattanís East Side.

The loan would finance World-Wide Groupís development of a 57-story building with about 270 units at 250 East 57th Street. Starwood competed with several banks for the lending assignment. The Greenwich, Conn., REIT prevailed by offering higher proceeds and more attractive terms, sources said. The banksí quotes generally came in below $400 million.

Starwood also appears to have benefited from being able to take down the entire loan rather than line up partners to share in originating the debt, as probably would have been the case for many other lenders. Although Starwood could later sell off portions of the debt, borrowers often prefer to be able to deal with a single lender up-front.

The exact terms of the financing are still being negotiated, but itís expected to have typical construction-loan characteristics: a floating rate and a three-year term with one or more extension options. New York-based World-Wide is being advised by Singer & Bassuk.

The residential tower is the second phase of a mixed-use development involving a public-private partnership between New York-based World-Wide and the New York City Department of Education. Announced in 2006, the project didnít get under way until 2010 because of the financial crisis. In the first phase, a portion of the cityís High School of Art and Design was demolished and replaced with a building housing new space for that school and an elementary school, plus a 38,000-square-foot Whole Foods supermarket. That building opened last fall.

Construction then began on the second phase, to consist of the residential tower with more retail space at its base. Itís unclear whether the 270 units will be condominiums or apartments. The city retains ownership of the land, and World-Wide will pay $325 million over the course of a 75-year ground lease.

This wouldnít be the first time Starwood won a lending assignment for a large New York construction project. In October, the REIT and affiliate Starwood Capital originated $475 million of senior and mezzanine debt for the acquisition and redevelopment of the office building at 701 Seventh Avenue in Midtown Manhattan by a partnership led by New York developer Steven Witkoff.

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