Deutsche Bank is securitizing a portion of a loan used to purchase an office building on Manhattan’s Westside, according to rating agency reports.
COMM 2016-787S Mortgage Trust is backed by a $640 million portion of a $780 million loan secured by 787 7th Ave., a 1.7 million-square-foot, 50-story class A office building. The property was built in 1985 and initially served as the headquarters for the Equitable Life Assurance Society of the United States, the predecessor of AXA.
The loan, which was originated by German American Capital Corp., a unit of Deutsche Bank, pays only interest and no principal for its entire 10-year term. The borrower, Fifth Street Properties, a joint venture between California Public Employees' Retirement System (CalPERS) and CommonWealth Partners, used the loan, along with $220 million in mezzanine financing and $975.0 million in equity, to purchase the property for $1.9 billion and to fund improvements.
The remaining $140 million of the senior loan is expected to be used for collateral for future offerings of commercial mortgage bonds.
Among the deal’s strengths is the fact that the loan is moderately leveraged; KBRA calculates the overall LTV at 75.1%.
It is also well located in the Columbus Circle submarket and was 98.3% leased to 16 tenants as of January 2016.
Among the risk factors cited by S&P and KBRA, a large portion of building tenants are law and financial services firms, which together represent 93.4% of the total square footage and 94.5% of total base rent.
There is also some risk that space could be vacated as leases for the two largest tenants, BNP Paribas and Sidley Austin, expire before the loan matures.
The trust will issue a senior tranche of class A notes with a loan-to-value ratio of 42.5% and preliminary triple-A ratings from Standard & Poor’s and Kroll Bond Rating Agency. The class B tranche with an LTV of 52.5% is rated AA-/AA and the class C tranche with an LTV of 60% is rated A-/A. There is also an unrated tranche of notes with an LTV of 71.7%.
