Citigroup is preparing $1.45 billion of commercial mortgage bonds backed by two buildings that it leases in lower Manhattan.
The deal, Citigroup Commercial Mortgage Trust 2014-388G, is secured by the fee interest in 388 and 390 Greenwich Street, two adjoined class A office buildings comprising 2.6 million square feet in the TriBeCa neighborhood, according to a presale report published by Standard & Poor’s. The buildings are 100% leased by Citigroup Technology and guaranteed by its parent, Citigroup.
The buildings are owned by 388 Realty Owner LLC, a unit of SL Green Realty Corp., the largest commercial office landlord in New York City. The loan on the properties was originated by Citigroup Global Markets Realty Corp.; Bank of China, New York Branch; Wells Fargo Bank; and Barclays Bank.
This mortgage loan is interest-only for its entire fully extended, seven-year term, meaning there will be no scheduled repayment of principal before the payoff date. S&P considers interest-only loans to be riskier that amortizing loan, because there is a higher balance for the borrower to pay at maturity. On the plus side, however, Citigroup has a long-term triple net lease through December 2035, more than 14 years after the loan comes due.
Also, the lease is structured without termination options, so Citigroup has no rights to reduce or give back any portion of its space.
The lease is also structured with a purchase option that gives Citigroup the right to acquire the property between Dec. 1, 2017 and Dec. 31, 2020 for approximately $2.0 billion.
The securitization trust will issue eight classes of notes, including a $595 million of class A notes with preliminary AAA’ ratings.