The first offering of commercial mortgage bonds to hit the market post-Labor Day comes from JP Morgan Chase, which is securitizing a $900 million portion of a $1.2 billion loan on an iconic Manhattan office building at 9 West 57th Street.
The buildings’ owner, controlled by real estate developer Sheldon H. Solow, is using the loan to refinance the building, cashing out $485 million of equity in the process.
Large office buildings, such as this 50 story skyscraper with views of Central Park, are typically financing in the securitization market because the loans are too large for a single insurance company, or even a consortium of insurance companies, to hold on their books. Loans this large are also difficult to securitize in a single-asset transaction, which is why JP Morgan plans to use the portion not used in this transaction as collateral in additional offerings of mortgage bonds.
The deal, JPMCC 2016-NINE, is being rated by KBRA and Fitch Ratings.
Solow developed the property in 1972; it consists of 1.5 million square feet of office space, approximately 72,000 square feet of retail space. As of June 2016, the property was 63.5% leased to 26 tenants. The five largest tenants are Kohlberg, Kravis, Roberts; Chanel Inc.; Apollo Management Holdings; Och-Ziff Management; and Providence Equity LLC. Together, these five tenants account for 38.0% of total square footage and 62.4% of base rent. The subject serves as the headquarters for the four largest tenants.
The prior debt was securitized in a 2012 transaction, meaning it was necessary to defease the old loan.
Among the ratings considerations cited by KBRA in its presale report is the relatively low leverage; the rating agency calculates the loan-to-value at 62.1%. This is the second lowest among the 13 transactions backed by a single New York City office building that KBRA has rated to date; these had in-trust LTVs ranging from 48.6% to 91.8%, with an average of 76.3%.
The loan has a 10-year term and requires monthly interest-only payments, calculated using an annualized coupon rate of 2.8595%. The borrower ground leases the property from an affiliate of the sponsor; however, both the fee simple and leasehold interests are pledged as security for the mortgage, and in the event of a foreclosure, the lender would acquire both the fee and leasehold estates in the property.