(Bloomberg) -- SL Green Realty Corp. obtained a $1.25 billion loan to redevelop a skyscraper in Manhattan, pushing forward with investment even as New York offices remain largely empty and the city braces for a second wave of coronavirus.
The construction-financing deal for One Madison Avenue, in the city’s Flatiron district, is being led by Wells Fargo & Co., SL Green president Andrew Mathias said in an interview. Internal demolition has begun on the project, which has no committed tenants yet.
Bank of America Corp., Toronto-Dominion Bank, Deutsche Bank AG, Goldman Sachs Group Inc. and Axos Bank are also in the lending group, Mathias said.
“The building delivers in 2023, so we have confidence in getting through this period,” Mathias said. “Our position as developers with this kind of vision and certainty generally gets rewarded in New York City.”
SL Green is gutting and transforming the property overlooking Madison Square Park. The landlord is keeping the base of the existing building and will develop a new 530,000-square-foot (49,000-square-meter) tower on top of it, bringing total space to 1.4 million square feet.
The finished tower will be 27 stories, or 471 feet (144 meters), tall and have rooftop terraces, an event space, artisanal food market, tenant lounge and fitness center.
Credit Suisse Group AG was the former anchor tenant at the building, between on Madison and Park avenues at 23rd Street.
Pandemic Shifts
The financing deal comes just weeks after SL Green opened One Vanderbilt to the north, near Grand Central Terminal. One Madison is the largest commercial development to start construction since March, when the pandemic brought most commercial-property transactions to a halt.
The loan terms are up to six years with interest at a floating rate of 3.35% over Libor, with the option to reduce the spread to 2.50% upon reaching leasing and completion milestones, the firm said. Some of the same banks were also lenders for One Vanderbilt, Mathias said.
Lenders have been cautious to make new loans given the uncertainty about the market, especially struggling retail and hotel properties. But as real estate debt investors stockpile cash, competition is building for higher-quality developments.
“We’re concerned about the current status of things more so with respect to our existing properties,” Mathias said. “For a longer-term development, that’s a generational-type development, you can never pick a right or wrong time to start it.”
SL Green said it sold a 49.5% interest in One Madison to the National Pension Service of Korea and Hines Interest LP in May. The entire project will cost roughly $2.3 billion.
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