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CMA
May 22, 2020  

RFR Seeks Debt to Buy Fifth Avenue Offices

RFR Holding is on the hunt for a $300 million loan to finance its purchase of an office condominium at 522 Fifth Avenue in Midtown Manhattan.

The New York investment shop is asking for quotes on a mortgage with a term of five years, including extensions, on the 553,000 square feet of space. That would match the lease agreement with the sole tenant, Morgan Stanley. Newmark is shopping the assignment, which has some atypical aspects that could help attract lenders in a time of economic uncertainty.

RFR, led by Aby Rosen and Michael Fuchs, agreed to buy the condo from Morgan Stanley via CBRE in early March, before the full fallout from the coronavirus pandemic became apparent. The purchase price would be around $350 million.

As previously reported by sister publication Real Estate Alert, RFR negotiated a relatively long due-diligence period, as it occasionally does, that gave it about six months to close. That was viewed as an advantage given that the commercial-property financing market had essentially frozen. It has since begun to thaw a bit, but remains spotty.

The proposed deal carries features apparently meant to ease lenders’ concerns about backing a large acquisition. For example, a source said Morgan Stanley has agreed to a sale-leaseback arrangement that includes a full corporate guarantee of its rent for up to five years. However, either RFR or the investment bank can cut the lease short, at 3.5 years, if they choose. RFR intends to lock in one or more tenants to take all of the space before the term is up.

In addition, the proposed structure includes an unusual cash sweep that, for a period of time, would direct income from the property toward reducing the balance of the loan.

Morgan Stanley uses the property as the headquarters for its investment-management division. It bought the 23-story building from Broadway Partners in 2007 and divided it into office and retail condos in 2014. That year, it sold the 27,000 sf of retail space on the first two floors for $165 million to a partnership including Ashkenazy Acquisition of New York and German investor Deka Immobilien. That space has remained vacant. The bank listed the office portion around the beginning of the year.

The property is at 44th Street, one block north of Bryant Park and two blocks west of Grand Central Terminal. It was constructed in 1896 and opened as the Sherry Hotel. It was later converted to offices, and heavily redeveloped in the 1960s.