Deutsche Bank is securitizing a commercial mortgage used by private equity giant The Blackstone Group to purchase 1740 Broadway, an office building in midtown Manhattan.
Deutsche Bank subsidiary German American Capital Corp. underwrote the 10-year loan obtained by Blackstone affiliate Blackstone Property Partners, L.P. in December 2014, according to a DBRS presale report.
DBRS plans to assign an 'AAA' rating to the class A notes and class XA notes offered by BWAY 2015-1740 Mortgage Trust. The notes benefit from credit enhancement of 48.8%.
The building was extensively renovated in 2007 for a total cost of $13.7 million. The building consists of 572,645 square feet of office space, 16,587 square feet of ground floor retail space that is occupied by the restaurant Brasserie Cognac and a retail bank branch, as well as 14,696 square feet of storage space.
L Brands, the parent company that owns national chain stores Victoria's Secret and Bath and Body Works, is the largest tenant in the building, which occupies the whole block along Broadway between West 55th and West 56th streets, according to DBRS. L Brands has been at the building since 2006. Its leases all expire in March 2022, two years prior to loan maturity, but contain one five-year renewal option. The property has averaged a 6.0% vacancy rate over the past 20 years, and as of October 31, 2014, was 98.3% leased by five tenants, according to the presale report.
Blackstone purchased the building for $605.0 million from Vornado Realty Trust and, according to the appraisal, it has a dark value (which includes valuation with the possibility of the property being vacant) of $400.0 million, which is 129.9% of the loan amount. However Blackstone has the opportunity to create additional value by leasing up approximately 6,914 square feet of soon-to-be-available ground floor retail in the coming years. The firm anticipates retail demand in the immediate area, helped by the presence of the nearby Nordstrom flagship store that is currently under development and is slated to open in 2017.
Blackstone’s current New York portfolio consists of approximately 3.8 million square feet of real estate, including a few non-stabilized assets. Its entire New York portfolio exhibits a weighted average occupancy of 90.0%, but its stabilized assets report a higher weighted average occupancy of 97.0%. Notable assets include 1095 Avenue of the Americas, 1460 Broadway and 119 West 40th Street. The portfolio had a net worth of $3.1 billion as of March 31, 2014.