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CMA
July 10, 2020  

Crisis Complicates BofA Syndication Effort

Bank of America appears to be having a tough time lining up syndicate partners for a $400 million mortgage it originated on an office condominium in Manhattan, as lenders are increasingly reluctant to participate in deals with “pre-Covid” terms and pricing.

The floating-rate loan, which closed around early December, is backed by a 270,000-square-foot condo in the massive office property at 30 Hudson Yards. The space is owned by New York developer Related Cos., which completed construction of the 2.6 million-sf tower last year..

The mortgage, which has a term of five years, was negotiated months before the coronavirus outbreak sent financial markets into a tailspin in mid-March. The spread is in the neighborhood of 175 bp over one-month Libor — pricing that market pros described as “very thin” in the current environment.

Although the debt market has settled down a bit in the past two months, continued uncertainty about property cashflows has lenders insisting on lower leverage and higher rates to compensate for the heightened risk. That has made it increasingly difficult for BofA and other banks to syndicate deals hammered out prior to the crisis.

“It’s definitely pre-Covid and top-of-the-market pricing and leverage,” said a source familiar with BofA’s syndication efforts. “And Related never leaves one penny on the table” — meaning the terms are viewed by most lenders as too borrower-friendly.

With a much smaller pool of prospective syndicate partners, BofA may end up holding a bigger piece of debt than it originally intended. And the bank is hardly alone. Lead lenders on several other deals negotiated before the pandemic struck have had a hard time coaxing others to come on board. One bank in that situation is HSBC, which has been trying for months to put together a group and originate a $500 million mortgage to refinance Global Holdings’ 721,000-sf office building at 1250 Broadway in Manhattan.

In some cases, banks leading the deals have offered to share portions of their origination fees and dangled other concessions to entice other lenders to participate. “These pre-Covid deals aren’t getting done unless you enhance it somehow,” one pro said.

Related developed 30 Hudson Yards in partnership with Oxford Properties, the real estate arm of Ontario Municipal Employees of Toronto. Early on, the team divided up the property into several condos, selling the largest piece, totaling 1.5 million sf, to Time Warner. Last year, the media giant struck a deal to sell and lease back the space from a Related partnership that included Allianz Investment and Arizona State Retirement. That transaction was financed via a $1.4 billion commercial MBS loan written by Deutsche Bank, Goldman Sachs and Wells Fargo.

It’s unclear why BofA waited for months to syndicate the loan on Related’s other office condo in the building. Sources said discussions began in recent weeks. The debt package also includes a $75 million mezzanine loan held by an unidentified investor.