New York developer Sheldon Solow secured a $625 million loan from Deutsche Bank AG to refinance debt on 9 West 57th Street, a trophy tower in midtown Manhattan, as lenders focus on the best properties.
The lender beat out American International Group Inc. and JPMorgan Chase & Co. to provide the financing, which may be packaged as bonds to be sold to investors, said two people familiar with the deal, who declined to be identified because the negotiations aren’t public. The loan would refinance debt that comes due in February that was bundled into securities in 2007 at the peak of the property bubble, according to data compiled by Bloomberg.
The competition underscores strong demand for prime buildings in big cities even after the European debt crisis roiled markets and caused lenders to pull back from financing skyscrapers, hotels and shopping centers. While Bank of America Corp. vacated 9 West in 2008, leaving about half of the 1.6 million square-foot (149,000 square-meter) tower empty, tenants include KKR & Co., Apollo Global Management LLC and luxury-goods maker Chanel SA, Bloomberg data show.
“As far as a plaza-district office building, the location doesn’t get any better,” said Dan Fasulo, a managing director at Real Capital Analytics Inc., a New York-based firm which tracks commercial real-estate sales.
Steve Solomon, a spokesman for Solow and Renee Calabro, for Frankfurt-based Deutsche Bank AG, declined to comment. Justin Perras of JPMorgan and Mark Herr of AIG, both based in New York, declined to comment.
The 50-story building commands some of Manhattan’s highest rents, particularly for higher floors that have unobstructed views of Central Park, Fasulo said, estimating the property may be worth as much as $1.5 billion. The building was valued at $2.24 billion in 2007, Bloomberg data show
“He’s fortunate enough to have very low leverage on the building which allows him to carry the vacancy,” Fasulo said. “He could lease those floors tomorrow if he wanted too.”
The deal contrasts with the majority of commercial property loans packaged into securities in 2007 that need to be refinanced next year. About $55 billion of property loans sold as securities come due in 2012, with $19 billion of those originated in 2007, Standard & Poor’s analyst Larry Kay said in a Dec. 19 report. As much as 50 percent to 60 percent of those five-year loans will struggle to refinance, the New York-based rating company forecasted, after property values decreased 42 percent from the peak.
Super Duper Index
Loan originations for the commercial-mortgage backed securities market fell 48 percent in the third quarter, according to the Mortgage Bankers Association, as Europe’s fiscal imbalances caused investors to flee risky assets.
The extra yield investors demand to own top-ranked commercial-mortgage bonds rather than Treasuries reached 323 basis points, or 3.23 percentage points, on Oct. 18 from 209 basis points on July 1, according to the Barclays Capital CMBS AAA Super Duper Index. The spread has narrowed to 259 basis points.
Solow declined to lower rents at the building to attract new tenants even as the financial crisis ravaged the New York office market, the Wall Street Journal reported in an April 2010 article.
“He has a history of not being easy to work with,” Fasulo said. “He thinks he has the ultimate product and if you don’t accept his terms, you’re not a tenant in his building.”