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September 14, 2018  

Pension Halts Search for NY Office Mortgage

New York Common Fund has dropped its effort to line up as much as $700 million of debt on a Midtown Manhattan office tower that it has almost finished redeveloping.

The pension system had asked lenders a couple of months ago for quotes on a long-term, fixed-rate debt package on the 932,000-square-foot building, at 390 Madison Avenue. Roughly $600 million to $700 million was sought, representing leverage of less than 50%.

A number of commercial MBS shops and insurers submitted preliminary bids to HFF, which ran the marketing effort. But the pension system recently decided against proceeding.

New York Common Fund, which is advised on the investment by Clarion Partners of New York, declined to comment on why it backed away. Some think the decision is connected to a management shift. In May, Vicki Fuller announced her resignation as the pension system’s chief investment officer, effective at the end of July. She was replaced on an interim basis in late July by her former deputy, Anastasia Titarchuk. The financing drive was halted a few weeks later.

New York Common Fund is completing a massive redevelopment of the property, costing more than $500 million. It has fully pre-leased the building, which was vacant during construction. J.P. Morgan has leased 437,000 sf for 10 years. The bank plans to demolish its headquarters at 270 Park Avenue, one block to the east, and replace it with a 70-story tower. It’s relocating employees to nearby space while that project proceeds. Other tenants include beauty-products company Shiseido Americas (225,000 sf) and law firm Hogan Lovells (200,000 sf).

The property, which was developed in the early 1950s, stretches from East 46th to East 47th Streets on the west side of Madison Avenue, a few blocks north of Grand Central Terminal. New York Common Fund purchased the underlying ground in 1997 and took over the building in 2014, when the leasehold interest, then held by investor Sheldon Solow, expired.

The pension system retained L&L Holding of New York to steer the redevelopment. The project added eight floors to the existing 24-floor structure, replaced the building’s facade and included the installation of floor-to-ceiling windows. Multiple outdoor terraces were created, and the building’s infrastructure was updated. The new offices have been characterized as having a more open, airy feel, which is more in line with the current preferences of tenants. The upgrades qualified the building for a LEED gold designation.