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December 13, 2019  

Citi, Morgan Stanley Step In After Natixis Exit

Citigroup and Morgan Stanley are looking to syndicate a roughly $650 million Manhattan office loan that they agreed to fund after Natixis backed out.

The floating-rate mortgage is secured by the 1.1 million-square-foot tower at 335 Madison Avenue. The owner, Milstein Properties of New York, is modernizing the building, much of which will be geared toward relatively small tenants in shared spaces.

The six-year loan is the senior portion of a $749 million debt package arranged by Brookfield Asset Management of Toronto. Brookfield originally placed the senior portion with Natixis, but the French bank dropped out shortly before the debt package closed around the end of October.

Brookfield funded the entire balance itself and later lined up Citi and Morgan Stanley to take down the senior portion. The two banks are currently talking to potential syndication partners.

It’s unclear why Natixis dropped out of the financing, but the bank pulled out of a number of other loan commitments unexpectedly over the summer, including two on Manhattan properties: $900 million it was to provide on the retail condominium within the Crown Building at 730 Fifth Avenue and roughly $600 million earmarked for the Coca-Cola Building at 711 Fifth Avenue. Other lenders stepped in.

Shortly after that spate of pullbacks, the head of the U.S. lending unit, Greg Murphy, retired. And there’s talk that other personnel changes are in the works at Natixis.

The bank suffered another blow recently when Maefield Development defaulted on a portion of a $1.9 billion debt package that Natixis had led last year on the hotel/retail building at 20 Times Square in Manhattan, as reported last week by Commercial Mortgage Alert. The default of the $1 billion loan on the leasehold interest followed a delay in the opening of the hotel and the loss of a major retail tenant.

On Monday, a Natixis syndicate that holds the $650 million senior portion of the $1 billion loan moved to foreclose, citing a 90% retail vacancy rate as of Sept. 9, a shortfall in required reserves and the failure of Indianapolis-based Maefield to complete its development of the property.

Natixis, the administrative agent, retained a $163.8 million portion of the loan, according to a complaint filed in New York State Supreme Court. Other original members of the lending syndicate included IGIS Asset Management of South Korea ($200 million), Harel Insurance Investments of Israel ($65 million), Cathay Life Insurance of Taiwan ($50 million), KEB Hana Bank of South Korea ($30 million), Chang Hwa Commercial Bank of Taiwan ($25 million) and China Merchants Bank ($16.3 million).

Milstein’s renovation of 335 Madison includes the addition of fiber-optic communications systems, state-of-the-art security and about 150,000 sf of amenities, including a pool, a fitness center and a terrace overlooking Grand Central Terminal.

The company is run by developer Howard Milstein, who is also chief executive of Emigrant Bank. A few years ago, his son, Michael Milstein, helped start a technology-business incubator that occupies some 100,000 sf and is expanding to 350,000 sf creating a “virtual tech campus” hosting several hundred startups and early-stage businesses.

Developed in 1913 as the Biltmore Hotel, the 29-story property was converted to offices in 1984. The Milstein family has owned it for several decades.

The building occupies the block stretching from Madison to Vanderbilt Avenues between East 43rd and East 44th Streets. It’s next to the 1.6 million-sf skyscraper that SL Green Realty of New York is developing at One Vanderbilt Avenue.