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CMA
August 19, 2016  

Morgan Stanley to Lead Loan on Chicago Mart

Vornado Realty has tapped the team of Morgan Stanley, Barclays and Bank of China to originate a $675 million fixed-rate mortgage on the Chicago Merchandise Mart.

Morgan Stanley will lead the financing and fund the largest portion of the five-year loan, although the exact amount is still to be decided. The three banks will securitize the mortgage next month via a stand-alone offering.

Vornado selected the trio after taking bids from a crowded field of balance-sheet lenders and securitization shops. The Morgan Stanley team won on the basis of both price and proceeds — they matched the insurance-company bid on the rate and offered more proceeds, according to lenders. Vornado can’t prepay for two years.

The 3.6 million-square-foot property, referred to simply as the Mart, was 95% occupied at yearend, with a weighted average rent of $38.72/sf. It’s in the River North submarket, one of Downtown Chicago’s hottest leasing districts.

Vornado originally asked lenders for proposals on $550 million of proceeds, which would have represented extremely low leverage — just 30% of the estimated value of about $1.8 billion. The New York REIT later increased its request.

The massive building, at 222 Merchandise Mart Plaza, faces the Chicago River. It produced $79.2 million of net operating income last year. Motorola Mobility, a unit of Chinese computer firm Lenovo, has a lease on 608,000 sf, or 17% of the space, until 2028. Google, which owned Motorola Mobility from 2012 to 2014, still guarantees the lease, according to an SEC filing.

The property, which was developed in 1930, was part of a 5.3 million-sf portfolio that Vornado bought in 1998 from Joseph P. Kennedy Enterprises of New York for $630 million. The portfolio also included a couple of properties in Washington and a management company affiliated with the complex, Merchandise Mart Properties, which Vornado later spun off.

In 2006, Vornado lined up $650 million of 10-year debt on the Mart from Goldman Sachs and Eurohypo, which securitized the senior $350 million piece across two deals (JPMCC 2006-LDP9 and GCCFC 2007-GG9). The rest was structured as mezzanine debt and placed with private investors. Some of the mezzanine debt was retired early. The remaining debt matures in December.

Vornado has been converting space in the Mart to “creative” office space to try to lure big technology firms, which have recently signed leases in the River North submarket. The rent roll already includes eBay and Yelp, in addition to Motorola.