Beacon Redevelopment LLC and PNC are tapping the commercial mortgage bond market for a cashout refinancing of a multifamily apartment complex in Jersey City, N.J.
The two sponsors obtained a total of $325 million in loans from JPMorgan Chase that are secured by six residential towers in The Beacon and one 510 parking facility.
Proceeds were used to repay existing debt and return approximately $66.3 million in equity to the PNC and to Beacon Redevelopment, which is indirectly controlled by Paul J. Kuehner and Carl R. Kuehner, who founded BLT, a privately held real estate developer, manager and private equity firm.
Portions of six first mortgages on the six buildings are being bundled into $200 million of collateral for J.P. Morgan Chase Commercial Mortgage Securities Trust 2018-BCON, according to S&P Global Ratings. Other portions of the first mortgages totaling $55 million will be used as collateral in future securitizations, according to S&P. There is also $70 million of mezzanine financing held outside of the securitization trust.
Among the strengths of the deal, according to S&P, is the quality of the property and its location atop the Hudson Palisades, a line of steep cliffs along the west side of the lower Hudson River in northeastern New Jersey, which provides unobstructed views of Manhattan.
The buildings were initially constructed in the 1920s and 1930s as the Jersey City Medical Center; Beacon Redevelopment converted them to apartment buildings between 2012 and 2015. “The property has received numerous awards for its restoration, preservation, adaptive reuse, and historic rehabilitation of the buildings for preserving the state's architectural, archaeological, and cultural history,” the presale report states.
The property was 94.6% occupied as of Aug. 30, 2017, which is in line with the local market average for this property type and quality, according to S&P.
The rating agency also sees the experience of the sponsor as a strength. BLT has invested in, developed, owned, and managed over 25 million square feet of commercial, hotel, and residential properties across 26 states.
The principal risk to the deal is its high leverage: S&P puts the loan-to-value ratio at 91.6%, based on its own valuation of the property. That’s significantly higher than the LTV ratio based appraiser's valuation of 58%.
Taking into account debt held outside of the securitization trust, S&P’s LTV is even higher, at 116.5%.
S&P is not particularly concerned about the fact that Beacon Redevelopment is cashing out equity, however, since the sponsor has made significant investments in the property over the years.
