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CMA
July 27, 2018  

Quick Refi Sought for Chicago Office Trophy

Less than a year after locking in a mortgage on a new office tower in Chicago, the owner is looking for about $470 million of fresh financing.

The 1.2 million-square-foot building, at 150 North Riverside Plaza, was completed early last year. The ownership group, which includes Riverside Investment & Development and Wanxiang America Real Estate, is seeking fixed-rate debt with a term of 7-10 years. HFF is pitching the assignment to a range of lenders, including commercial MBS shops, insurers and banks with the capacity to originate longer-term loans.

The loan would replace the same amount of floating-rate debt, originated just last August with a five-year initial term and two one-year extension options. Bank of America, Helaba Bank and RBS Citizens wrote that loan and syndicated portions to Associated Bank of Green Bay, Wis., Regions Bank and Raymond James.

Why refinance so soon, at the same proceeds level? The impetus, sources said, is a desire to lock in long-term, fixed-rate debt at more attractive all-in pricing.

A likely factor in the decision is the flattening of the Treasury yield curve — the difference between yields on shorter- and longer-term government bonds. While Treasury yields have been rising across the board, the increase has been quicker at the short-term end of the curve. For example, the difference between two- and 10-year Treasury yields was 30 bp yesterday, down from 54 bp at the beginning of the year and 93 bp a year earlier. As that gap shrinks, so does the cost advantage to the borrower of short-term financing.

Meanwhile, a new CBRE report notes that spreads charged by lenders for longer-term loans have tightened in the past year — by an average of 66 bp for mortgages of 7-10 years with leverage of 55-65%.

The collateral for the proposed loan is a 54-story building that has quickly come to be viewed as one of the distinctive properties in Chicago. Due to its unusual structure, cantilevered above a narrow base, it is sometimes referred to as “The Tuning Fork.” Local firm Riverside and Wanxiang, of Elgin, Ill., financed its construction with $296 million of debt provided by a group of banks, including several in the syndicate that provided the takeout loan last summer.

The building is now virtually fully leased. The larger tenants include investment firm William Blair (318,000 sf), Hyatt Hotels (250,000 sf) and Navigant Consulting (110,000 sf).

The property is at West Randolph Street, just south of where the Chicago River’s three branches merge. Its amenities include a fitness center, a ballroom, conference facilities, various eateries and a 1.5-acre plaza and park.