Goldman Sachs Group Inc. and Deutsche Bank AG are funding the acquisition of New York’s 650 Madison building with an $800 million loan, according to two people with knowledge of the transaction.
The lenders plan to package the debt on the Manhattan tower into bonds to sell to investors, said the people, who asked not to be identified because the negotiations are private. A $150 million portion may be carved into riskier mezzanine loans that pay higher yields, one of the people said.
The deal signals Wall Street’s conviction that bond buyers will snap up the commercial-mortgage backed securities even as concern that the Federal Reserve may begin to reduce stimulus efforts next month roils markets. Goldman Sachs and Deutsche Bank beat out Citigroup Inc., Bank of America Corp., JPMorgan Chase & Co. and Wells Fargo & Co. to land the assignment, according to four people with knowledge of the talks.
Michael DuVally, a spokesman for Goldman Sachs, and Amanda Williams of Deutsche Bank, both in New York, declined to comment.
A partnership between Crown Acquisitions and Highgate Holdings Inc. agreed to pay a record $1.3 billion, or $2,100 a square foot, for the tower at Madison Avenue and East 59th Street in June. Vornado Realty Trust and Oxford Properties Group have joined the consortium of buyers, Vornado Chairman Steven Roth said on an Aug. 6 conference call with analysts.
The purchase, from Carlyle Group LP, is the largest for an entire building in the U.S. since Google Inc.’s $1.8 billion acquisition in 2010 of 111 Eighth Ave., a former warehouse in Manhattan’s Chelsea section. It exceeds the record $1,583 a square foot paid for 450 Park Ave. in 2007.
Wall Street banks have arranged $49.1 billion of bonds linked to everything from strip malls to skyscrapers this year, according to data compiled by Bloomberg. Issuance is forecast to climb to $70 billion in 2013, more than double last year’s total, according to Credit Suisse Group AG.
The 650 Madison buyers took out a fixed-rate loan with a term of seven years to acquire the 27-story building, the two people with knowledge of the deal said. The 600,000-square foot (55,700-square-meter) tower, built in 1957 to house the headquarters of the business lender now known as CIT Group Inc., is located in Manhattan’s Plaza district, which commands some of the priciest rents in the U.S.
The buyers originally sought a 10-year mortgage, the people said. The group changed its plans after Federal Reserve Chairman Ben S. Bernanke said in late May that policy makers could reduce $85 billion in monthly bond purchases within months, leading to a surge in interest rates that complicated the financing process, the people said.
Property values declined by 1 percent in July after recouping a 40 percent drop from the peak in August 2007, Green Street Advisors said in an Aug. 6 report.