Two large commercial mortgage-backed transactions are launching into the market this week, including a securitization of a new commercial mortgage for Starbucks’ headquarters complex in Seattle.
According to a presale report from S&P Global Ratings, owners of 1.5-million-square-foot, mixed-use Starbucks Center in Seattle will conduct a cash-out refinancing totaling $425 million backed by the historic building that's home tothe global coffee-shop chain.
Also this week, Brookfield Asset Management’s global real estate arm is tapping the CMBS market to conduct a similar cash-out refinancing a commercial mortgage secured by a downtown Manhattan office building largely occupied by various servicing arms of Morgan Stanley.
Starbucks headquarters
The owners of the three-building Starbucks Center campus south of downtown Seattle plan to market bonds via the COMM 2020-XBX Mortgage Trust to finance a new eight-year mortgage originated by Deutsche Bank, per presale reports from S&P Global Ratings and DBRS Morningstar.
The loan was issued after Starbucks recently executed a 20-year lease extension on the property through September 2038 — even though most of its employees are currently in work-from-home arrangements through most of 2021. The new loan refinances an existing loan and returns $170.2 million in equity to property developer and deal sponsor SoDo Center Inc., which is controlled by Washington commercial real estate firm Nitze-Stagen & Co. and Daniels Real Estate.
Starbucks occupies 1.3 million square feet through a triple-net lease arrangement with the sponsor, which under terms of the new loan has to reserve $78.2 million in leasing expenses for the Starbucks space and $10 million for elevator repair and refurbishment in the century-old building.
The overall mixed-use property has served as Starbucks’ headquarters since 1993, shortly after it purchased the building originally built in 1912 as the flagship retail store and distribution/warehouse center for Sears, Roebuck & Co.
Sears closed its retail location at the site in 2014, but now a Home Depot retail store (7% of net rentable area) and an Amazon Fresh and prime pickup location (3%) represent the largest co-tenants of the property. (According to Nitze-Stagen, the redeveloped building is believed to be the largest multitenanted building west of the Mississippi River.)
Although Starbucks currently pays a substantially low rent rate of $8.71 per square foot (compared to the market rent rate of $43.89 in the “South of Seattle” submarket), the loan provides an above-average net cash flow of 22.6% — as estimated by S&P — and a debt-service coverage ratio of 1.56x based on strong retail sales performance on the property as well as contracted rent hikes for Starbucks in the near future, the report stated.
The new mortgage also carries low leverage (a 73.4% loan-to-value ratio).
The capital stack includes a $247.38 million Class A senior-note tranche with a preliminary AAA rating from S&P and DBRS Morningstar, along with four subordinate notes classes and a tranche of notes that pay interest-only to investors.
1 New York Plaza
One New York Plaza Trust 2020-1NYP is a securitization of an $835 million first mortgage loan to refinance debt on the 50-story, Class A office tower located at 1 New York Plaza, as noted in a report Monday from Kroll Bond Rating Agency.
The borrower is an affiliate of the $208 billion-asset Brookfield Property Partners, and is part of an ownership group that has controlled the 50-year-old building since 2012.
Brookfield has a 35% share of the building’s ownership, alongside an undisclosed sovereign wealth fund that owns 49% and AE Capital Management (16%). The ownership group has spent approximately $236.7 million in upgrades, face and common area renovations along with tenant improvements, according Kroll.
Morgan Stanley Services Group is 1 New York Plaza’s signature tenant, making up 58% of the total base rent and 53.2% of the estimated 2.6 million square feet of the building. (Total leased occupancy is 96.5%, Kroll stated in its report.)
Morgan Stanley last year executed a five-year lease extension on four floors in the building where it is consolidating personnel from other New York office to house its administrative and support, compliance and wealth management divisions, per Kroll.
Proceeds from the loan retired existing debt of $750 million and provided an equity return of $58.8 million to Brookfield. The loan also was used to fund a $13.4 million escrow account reserving cash for expected tenant improvements and leasing costs.
Kroll has assigned a preliminary AAA rating to the $445.7 million Class A tranche of notes in the capital stack.
The deal is the third single-asset commercial mortgage securitization in the past month for Brookfield.
