Durst Refinances NYC Office-Tower Debt With $1.1 Billion Deal
(Bloomberg) -- The Durst Organization is marketing $1.1 billion in commercial mortgage-backed securities to refinance office buildings at 1133 Sixth Avenue and 114 West 47th Street in midtown Manhattan.
Investors were being shopped top-rated securities Monday with yields that could range 98 to 99 basis points over a swap-spread benchmark for 10-year paper. That compares to an 80-basis point range for similar pre-Covid single-asset deals for office buildings in February 2020. A junk-rated tranche may have as much as a 335 basis point spread over benchmark, compared to 240 on a similar pre-Covid deal, according to data compiled by Bloomberg.
The offering is the latest of several single-asset commercial mortgage bonds sold this year tied to the financing of urban office buildings. Despite shrinking demand for office space, lower rents, and uncertainty about how remote work will be combined with a physical return of employees to offices, investors have clamored for securitized bonds that offer a little more yield than other asset-backed debt and corporate paper.
“Much of the trading in the CMBS office sector occurring now is yield-driven or crossover buyers from the corporate-bond space, given how fully valued corporate credit has become,” said Christopher Sullivan, chief investment officer of the United Nations Federal Credit Union. “But no, it’s not really a vote of confidence for the return of the office market, because I think it’s too early to have much confidence in a rapid rebound in New York office and commercial property.”
The fixed-rate commercial mortgage-backed securities -- underwritten by Bank of America Corp., Citigroup Inc., and Wells Fargo & Co. -- will be used to retire approximately $800 million of existing debt, return $283.5 million of equity to the owner and cover closing costs, according to Fitch Ratings. The debt being retired is from a $200 million balance-sheet loan tied to 1133 Sixth and $600 million of an existing credit facility.
As of February 2021, the properties were 94.8% leased to 45 diverse tenants, Fitch said, with approximately 53% of the so-called net rentable area leased to investment-grade and credit-worthy tenants or their affiliates. Additionally, approximately 13% of the rentable area is leased by law firms that are part of the AM Law 200, a list of the country’s top-grossing law firms.
©2021 Bloomberg L.P.