Deutsche and Citigroup are marketing $500 million of bonds backed by a commercial mortgage for the Bloomberg Building headquarters complex in midtown Manhattan.
The two-tower structure at 731 Lexington Avenue is the lone property securing the mortgage being pooled into the deal, dubbed DBCG 2017-BBG. The capital structure includes a $393 million senior note tranche with preliminary triple-A ratings from Kroll Bond Rating Agency and Fitch Ratings.
The proceeds of the interest-only three-year loan will refinance $300.5 million of an existing mortgage loan, as well as provide $187 million equity cash-out for the REIT sponsor Alexander’s, Inc. Alexander’s is managed by Vornado Realty Trust, which has a 32.4% share of the publicly traded REIT with a market cap of $2.2 billion.
Deutsche Bank AG was the lead underwriter on the loan by issuing 70% of the proceeds; Citigroup Global Markets Realty Group financing the remainder. The original loan was originated by Great American Capital Corp. was pooled in the COMM 2014-BBG transaction three years ago.
The property is within the popular Plaza District submarket, and consists of a 57-story, Class A mixed-use tower and a connected nine-story building – each sharing a three-level structure underneath both buildings. Approximately 909,000 square feet is devoted to office space, including 889,089 square feet for the Bloomberg L.P. organization representing 97.8% of the leasable square footage.
Bloomberg, the data services, software and financial information giant, dominates the lease cash flows as well by providing 98.8% of yearly receivables through its annual base rent of $63.88 million. Bloomberg has a triple-net lease that expires in 2029 (and has an option for a 10-year renewal).
The Iconic building (a “trophy asset” for Vornado, stated Kroll) also has retail space leases for The Container Store, Home Depot, H&M as well as La Cirque, the noted French restaurant.
Its valuation is $1.45 billion, with a loan-to-value ratio at 34.5%. KBRA put the building's value at only $807.5 million, but still estimated the in-trust leverage ratio at a “very low” 61.9%.
The bond classes also include $138.27 million in triple-A rated interest-only tranches, a Class B notes series totaling $59 million (rated AA by Kroll and AA- by Fitch both), and $22.9 million in Class C notes. Kroll rated those subordinate notes at AA-, while Fitch held to a single-A rating.
To meet risk-retention requirements, German American Capital Corp. (one of the loan’s sellers) is holding on to a single class of $25.1 million in notes representing an eligible horizontal residual interest.