A group of banks led by Morgan Stanley and Citigroup are marketing $1.35 billion of bonds backed by a portion of mortgage on 767 Fifth Avenue in New York, better known as the General Motors Building.

The building’s owner, real estate investment trust Boston Properties, obtained a $2.3 billion mortgage on the property this month, using the proceeds to repay $1.3 billion of existing first mortgage debt, $306 million of mezzanine debt, fund reserves, pay closing costs, and cash out $653 million of equity.

While such a large cashout refi might be seen as a potential red flag, Kroll Bond Rating Agency, which is rating the deal, calls the property “arguably one of the most iconic office buildings in Manhattan.” The presale report also notes that Boston Properties has invested some $98 million in capital and tenant improvements between 2008 and 2016, and is contributing another $72 million toward the expansion and redevelopment of the space occupied by a key retail tenant, Apple.

Bloomberg News

The previous first mortgage debt had been reportedly held by Wells Fargo. Prior to that time, the related property secured a whole loan that was securitized across four 2005 CMBS securitizations which were subsequently defeased.

The new loan, which was co-originated by Morgan Stanley (34%), Citigroup (22%), Deutsche Bank (22%) and Wells Fargo (22%), pays only interest, and no principal for its entire 10-year term, according to Kroll. The loan consists of 29 pari passu A notes totaling $1.47 billion and four subordinate B notes totaling $830 million. The lenders contributed four of the A notes totaling $520 million and all four B notes as collateral for a new CMBS, BXP Trust 2017-GM. The remaining 25 A notes ($950 million) are expected to be contributed to future CMBS transactions. Stay tuned.

The GM Building, which serves as collateral for the loan, and ultimately the mortgage bonds, is a 50-story, Class-A office and retail building in Midtown Manhattan. The property was developed in 1968 and consists of 1.8 million square of office space, approximately 188,000 sf of retail space, and approximately 47,000 sf of storage, garage, and mechanical space. As of June 2017, the property was 95% leased to 34 tenants. The top five tenants, Weil, Gotshal & Manges (a legal firm), Aramis (a cosmetics company), Perella Weinberg (a financial services firm), Apple and BAMCO (a financial services firm), account for 56.8% of total square footage and 49% of base rent.

The building’s retail space includes Apple’s showcase "Cube" store, which is currently being expanded and redeveloped, and will also serve as the future home of Under Armour’s flagship store.

Kroll expects to assign an AAA rating to the senior tranches of notes. It considers the property to have “moderate” leverage, with a loan-to-value ratio, as calculated by the rating agency (KLTV), of 77.9%. By comparisons, single-asset CMBS rated by Kroll to date have had in-trust KLTVs ranging from 48.6% to 91.8%.

Kroll also takes comfort from the building’s historical occupancy and high quality tenancy, as well as the fact that the property is not encumbered by any additional debt, and that the loan documents do not permit any additional debt to be issued.

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