A joint venture between Paramount Group and a wealthy New York family is tapping the commercial mortgage bond market to refinance a 52-story trophy office building in midtown Manhattan.

Paramount, a publicly traded real estate investment trust, and the von Finck family, seasoned real estate investors and founders of the predecessor to Allianz, obtained a $300 million mortgage on 712 Fifth Avenue from Morgan Stanley and Deutsche Bank. Proceeds will be used to refinance existing debt of $246.5 million, fund $5.9 million in upfront reserves, pay closing costs and cash out $38.7 million of equity, according to Fitch Ratings.

The borrowers appears to have exercised some discretion; based on the as-is appraised value, they still have $640 million of implied equity in the property.

Upscale women’s specialty store Henri Bendel occupies all six stories of retail space at 712 Fifth Avenue, and pays below-market rent.
Bloomberg News

Fitch puts the debt service coverage and loan-to-value ratio of the mortgage at 1.32X and 66.5%, respectively.
The loan, which pays only interest (3.39%), and no principal, for its 10-year term, will serve as collateral for a transaction dubbed MSDB Trust 2017-712F. Fitch expects to assign an AAA rating to the senior tranche of notes to be issued, which benefit from 29.167% credit enhancement.

Home to upscale women’s specialty store Henri Bendel, 712 Fifth Avenue is a 543,386-square foot, 52-story building. The office tower was constructed in 1990 and was designed to accommodate two landmark townhouse buildings (Rizzoli and Coty buildings) at the base of the tower, which date back to the early 20th century.

It’s in a retail submarket with some of the highest asking rents in the world. However, Henri Bendel, which occupies all six stories of retail space, pays rent is approximately 77.5% below the market, and it tenant has two below-market renewal options for the space, which would extend the lease through February 2031.

Among other major considerations, according to Fitch, is the fact that the property is currently 94% occupied and has maintained an average historical occupancy of 94.8% since 2012. The building is leased to over 40 tenants, with no single office tenant representing more than 5.7% of the NRA

In 2013, the property received a silver LEED certification.

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