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Brookfield taps CMBS for $1.4B One Manhattan West transaction

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The newly constructed “ultra-Class-A” One Manhattan West office tower is the lone asset in a $1.43 billion commercial-mortgage backed securities that priced last week, representing the second-largest, single-borrower deal of the year.

Manhattan West 2020-1MW Mortgage Trust will involve the sale of six classes of commercial mortgage-backed securities, all backed by a new $1.8 billion loan secured by leasehold interests from a premier list of tenants on long-term leases — including two of the “Big Four” accounting firms, international law firm Skadden and the headquarters of the National Hockey League.

The 70-story building is owned by a joint venture of Brookfield Property Partners and the sovereign wealth fund of Qatar, and operated by Brookfield Asset Management.

Proceeds from the sale of six classes of via Manhattan West 2020-1MW Mortgage Trust will be used to pay off a bridge loan used to finance the estimated $1.36 billion in construction costs. Bond proceeds will also provide $355.6 million in cash-out equity back to the JV.

The transaction is the second-largest single-borrower CMBS deal in 2020, behind only a $3.4 billion SASB deal sponsored by Blackstone Group in January for a portfolio of industrial warehouse and logistics properties that priced in January.

The 2.1-million-square-foot building, at Ninth Avenue and West 33rd Street, is among five in a Brookfield planned mixed-use campus that includes two other office buildings, a hotel, condominiums and retail space surrounded by a public pedestrian plaza.

One Manhattan West, designed by the architectural firm Skidmore, Owings & Merrill LLP, is the second building completed for Brookfield’s “Manhattan West” project, following the 2016 opening of Five Manhattan West (a renovation of the former 450 West 33rd St. tower) that includes JPMorgan and Amazon as prime tenants.

Construction on the Manhattan West project is slated through 2023.

According to presale reports from DBRS Morningstar and Moody’s Investors Service, the One Manhattan West building is 93.8% leased as of Aug. 1, but has an average lease-term of more than 17 years for its primary occupants — far outstripping the seven-year original term of the interest-only loan (at 2.42% annually) the JV took out for the property.

Law firm Skadden, Arps, Slate, Meagher & Flom LLP takes up the most net rentable area in the building (638,784 square feet) as well as covering 28% of the base rent. The accounting firm EY is the second-largest tenant with 636,416 square feet, but provides 30.3% of the base rent. Accenture occupies 280,192 square feet (18.8% of base rent) followed by the NHL, which last year relocated to 176,007 square feet (8.4% of base rent) of new space in the tower from its former HQ at Rockefeller Center.

The building serving as a gateway between the revitalized Hudson Yards district and Penn Station is LEED certified and deemed to have “excellent” property quality as “among a small group of ultra-Class A office buildings financed in the public debt markets,” according to the ratings agency DBRS Morningstar.

The loan was underwritten by Deutsche Bank’s German American Capital Corp., Wells Fargo, Barclays Capital Real Estate, Citi Real Estate and JPMorgan.

The capital stack of the transaction has six tranches of notes, including $807.9 million in Class A notes with preliminary triple-A ratings from DBRS Morningstar and Moody’s Investors Service (both agencies also assigned their highest ratings to a corresponding interest-only tranche of senior Class X notes). The notes priced with a coupon of 2.13%.

The New York State Teachers’ Retirement System pension fund is expected to purchase and hold the risk-retention portion of the deal.

Brookfield will have substantial property tax abatement benefits provided by New York for the Hudson Yards zone, beginning with a 25% discount of the full taxes for the first four years on the property before abatement levels diminish over the course of two decades.

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CMBS SASB New York Brookfield Property Partners