A commercial mortgage recapitalization stemming from JMB Realty’s re-acquisition of the 1999 Avenue of the Stars office center in Los Angeles is the key component of Goldman Sachs’ new $1.08 billion CRE mortgage securitization.
GS Mortgage Securities Trust 2017-GS7 includes a $137.3 million portion of an overall $541 million debt package of pari passu and mezzanine loans as well as costs associated with the Chicago-based real estate developer’s spring 2017 buyout of The Blackstone Group’s controlling interest in the 39-story tower. The building, also known as the SunAmerica Center, is located in the tony Century City office submarket.
It is the second conduit transaction Goldman has used to parcel out the SunAmerica/1999 AOS building loan, which has received an investment-grade credit from ratings agencies assessing the collateral in the deal.
The loan to JMB is one of 32 loans covering just 35 commercial properties in the CMBS portfolio, and is part of a higher-than-average concentration of office, retail, multifamily and other properties in the deal. The portfolio’s assets represent less than half of the 73 properties (covered by 33 commercial mortgage loans) contained in Goldman’s previous commercial $959.1 million mortgage asset-backed offering in 2017-GS6.
The capital stack includes five classes of senior notes totaling $757.2 million of the bonds offering, all receiving preliminary AAA ratings from Moody’s Investors Service, Fitch Ratings and Kroll Bond Rating Agency. The notes all benefit from 30% credit enhancement; a subordinate senior tranche of Class A-S notes totaling $74.4 million have 23.1% CE.
More than $114 million of the notes will be retained by Goldman Sachs Mortgage Co. as an eligible horizontal residual interest for risk-retention purposes.
The 2017-GS7 portfolio consists of more than 50% office properties, which among Moody's-rated conduits is nearly double the 2016 average of 28% and is higher than the second-quarter 2017 concentration levels of 40.2%. The ratings agencies also note the high level of interest-only loans in the collateral pool, with 12 loans representing 64.7% of the mortgages non-amortizing for the entire term of the loan (another 14 loans that make up 19.6% of the pool are interest-only with balloon notes).
The pool does contain a lower concentration of anchored retail (12.9%) and multifamily (6.4%) properties than other CMBS transactions rated year-to-date by the agencies.
The portfolio also contains a large segment of loans with pari passu, or equal-footing, debt composed of larger first mortgages totaling more than $2 billion.
The largest of these stems from the JMB transaction, the largest loan in the portfolio. The $132 million loan completes a securitization of the $232.8 million senior loan originated for the 821,537-square foot office building; another $95.5 million was previously included in Goldman’s 2017-GS6 transaction.
As part of the $541 million debt package underwritten by Goldman, another $182.1 million in proceeds were used to refinance existing senior debt issued by MetLife, as well as to buyout the remaining mezzanine interest of Blackstone. Blackstone reportedly closed on selling its two-thirds controlling interest in SunAmerica/1999 AOS in April with JMB, which still had a minority stake in the building it developed in 1990.
Another $71.1 million of existing mezzanine debt held by JMB affiliates remains outstanding, according to presale reports.
1999 Avenue of the Stars is a premier Century City property that leases space to top 100 law firms (O’Melveny and Myers, Akin Gump Strauss Hauer & Feld, and Hogan Lovells) and financial tenants Morgan Stanley and Wells Fargo Advisors.
While vacancy rates have been elevated (24.7% on average from 2012-2016) since the 2010 departure of major tenant JPMorgan, JMB has added new tenants this year (including Bain & Co. and law firm Covington and Burling) and invested about $7 million in capital improvements to the building that is appraised at $860 million.
Another major loan in the new Goldman portfolio is an $85 million portion of a $198 million mortgage for a pair of New York office buildings owned by RXR Realty. RXR, a tri-state area commercial and residential property developer/manager, is borrowing the funds to refinance debt for RXR Plaza (one of its headquarters building) as well as The Omni office building that includes tenants in the legal, financial services, telecom and insurance sectors.
Like the 1999 AOS tower, it carries substantial mezzanine debt of $46 million.