A two-year, $515 million loan backed by part of The New York Times' Midtown Manhattan, N.Y. office tower is at the heart of a new commercial mortgage-backed securities transaction.
An office condominium made up of the tower's 28th through 50th floors and a ground-floor retail condominium are the collateral for the non-recourse, first-lien mortgage loan, which was originated by German American Capital Corp., Bank of America NA, Barclays Capital Real Estate Inc., and Citi Real Estate Funding Inc., according to a presale report from Morningstar Credit Ratings. Beyond the loan's initial term, the transaction gives the borrower five one-year extension options.
The collateral space was 100% occupied as of Dec. 1, 2018; tenants in the office condominium include ClearBridge Investments LLC and the law firms Covington & Burling LLP and Seyfarth Shaw LLP. The New York Times occupies the second through 27th floors, which are not included in the securitization. The borrower in the transaction is Forest City Enterprises LP, which Brookfield Strategic Real Estate Partners III LP, a fund affiliated with Brookfield Property Partners LP, acquired in December.
Deutsche Bank AG - New York Branch is expected to acquire a roughly $25.8 million risk-retention interest upon the transaction's close.
Morningstar noted that the loan is interest-only for its entire term, and floating-rate: Its initial interest rate, at a spread of 1.856796% over one-month London interbank offered rate, will increase by 0.25% if the borrower exercises the fourth extension option. There is a Libor cap of 3.50%.
The building, completed in 2007, has a "complicated legal structure," with the fee and leasehold interest on the entire property owned by New York City, The New York Times subleasing its portion of the building, and the CMBS borrower subleasing the office and retail condominiums, Morningstar's analysts said. After 2032, the borrower will have the option to purchase the fee interest on its portion from New York City for $10.
Besides the mortgage loan, the property also has a $120 million secured subordinate B note held outside the trust, plus $115 million of unsecured mezzanine debt, which raises the overall leverage on the property and potentially endangers its ability to generate enough cash flow to cover debt service, Morningstar said.