Deutsche Bank, Morgan Stanley and Wells Fargo plan to securitize a portion of a $1.8 billion commercial mortgage secured by 11 Madison Avenue in New York City.
The deal, called MAD 2015-11MD, is being rated by Kroll Bond Ratings Agency, which has assigned a preliminary ‘AAA’ to $328 .9 million of class A notes; ‘AA+’ to $85.5 million of class B notes; ‘A-’ to $165.5 million to class C notes, and ‘BBB-’ to $128 million of class D notes.
The remaining $366.8 million portion of the loan that does not serve as collateral is expected to be securitized in multiple future transactions.
The mortgage pays only interest, and no principal, for its entire term. So-called interest-pnly loans are considered to be riskier than loans that amortize, since there is more principal at risk when they mature. However Kroll said in the presale report this is partially mitigated by the fact that the borrower has a relatively large amount of equity in the property. Kroll puts the in-trust leverage of MAD 2015-11MD at 72.2% of the property’s value.
Credit Suisse and Sony are the two largest tenants, occupying a total of 80.7% of the building’s square footage. Together the tenants represent 78.9% of total base rent. There is little tenant “rollover” risk, since both Credit Suisse and Sony have leases that end six or more years after the mortgage matures.
Credit Suisse has used the property as its North American headquarters since 1996, and Sony is relocating its headquarters from 550 Madison Avenue to the subject over the next two years and will occupy its space as building renovations are completed.
Of the remaining tenants, seven have lease expirations through 2025, the year in which the loan matures, accounting for 17.4% of total base rent.
The loan, which is sponsored by SL Green Realty Corp., was used to help fund the building’s purchase for $2.3 billion on August 18, 2015 from the Sapir Group. The former owner acquired the property in 2003 from MetLife. SL Green is a real estate investment trust that is the largest office landlord in New York City. The company was formed in 1997 to continue the commercial real estate business of its predecessor entity, SL Green Properties, Inc., which was formed by Stephen L. Green in 1980.