After more than a year of negotiation, one of the most famous CMBS loans ever made has been modified.
An agreement was reached to rescue 666 Fifth Avenue, which is the Manhattan tower purchased for a record $1.8 billion at the peak of the property bubble.
The deal is now contingent on an equity infusion by Vornado Realty Trust. According to a Deutsche Bank Securities report, Vornado is contributing about $100 million to fund a reserve account. The firm will gain a 50% equity stake and will jointly operate the property and control leasing decisions along with property developer Jared Kushner, who bought the building in 2007.
The senior mortgage will be reduced by $115 million. Barclays Capital analysts explained in a note that the restructuring will include an A/B split structure, with a B-note balance of $115 million and an A-note balance of $1.1bn.
"If confirmed by the special servicer, this is a more favorable split than a number of other resolutions in recent modifications," analysts said. "Since the current coupon is 6.353%, the creation of the B-Note is expected to reduce monthly interest payments by about $630K."
The property 666 Fifth Avenue was one of the last remaining large and distressed pro-forma pari passu loans originated during the real estate bubble yet to be resolved, according to Deutsche Bank analysts.
"Resolutions like the 666 Fifth Avenue modification will continue to provide more clarity regarding the resolution of larger problem loans and lead to spread compression," they said.
Meanwhile, Fitch Ratings said that an increase in such loan resolutions coupled with a slowdown in new defaults has also contributed to the first meaningful drop-off in delinquencies in eight months.
Approximately $2.5 billion of previously delinquent Fitch-rated loans were resolved or liquidated in June, representing the second-highest one-month total on record after the $6.6 billion of resolutions recorded in October 2010. This was when the Extended Stay America loan was liquidated from its trust.
These resolutions outweighed $1.8 billion of new defaults, thus bringing down the overall delinquency rate.
CMBS late-pays fell 17 basis points to 8.64% last month (from 8.81%).
"CMBS delinquencies are likely to remain somewhat volatile with fairly large month-over-month fluctuations," said Mary MacNeill, Fitch managing director. "Many loans in special servicing range from $100 million to over $1 billion so the ultimate outcome of these loans could notably swing the delinquency index."
