A coterie of the nation's largest banks are bringing to market a poster-child for the current trend in commercial mortgage-backed securities: The $1.2 billion RFR Trust 2025-SGRM deal secured by the Seagram Building, an iconic New York City office tower.
Comprising six tranches carrying ratings ranging from AAA to B+, and two unrated portions, the loan was co-originated by Morgan Stanley Mortgage Capital Holdings, Citi Real Estate Funding, and JPMorgan Chase Bank, according to Fitch Ratings in February 12 pre-sale report. Wells Fargo National Association will act as master servicer, and Situs Holdings as special servicer.
Credit enhancement ranges from 47.5% on the $630.6 million tranche rated AAA, to 5% on the $69.5 million piece rated B+.
"The certificates represent the beneficial ownership interest in a trust expected to comprise a $1.2 billion, four-year, fixed-rate, interest-only commercial mortgage whole loan," Fitch says.
The loan's proceeds, along with $24.2 million in existing debt, will refinance $1.15 billion of prior debt and fund $46.9 million in upfront reserves related to ongoing landlord obligations and free rent, as well as taxes and closing costs.
Loan sponsor RFR Realty, directly owned and controlled by Aby Rosen and Michael Fuchs, is headquartered in the Seagram Building, as are 64% of its other tenants. The deal continues the trend of CMBS investors' preference for single asset, single borrower (SASB) deals that securitize the revenue streams of Class A "trophy" properties, which have central business locations, attractive amenities and well-established tenants.
Trepp research shows that 2024 CMBS issuance was dominated by SASBs, compared to the year before when similar volumes of SASB and conduit CMBS were issued. In the fourth quarter, $21 billion in SASB CMBS was issued compared to just under $10 billion in conduit.
Fitch estimated the property's net cash flow (NCF) at $77.59 million, 17.3% lower than the issuer's estimate, and the rating agency applied a 7.0% cap rate to derive a value of $1,397 psf, or rent per square foot.
"The Fitch cap rate is among the lowest applied to an office building, given the many unique factors of the asset, its location and its tenancy," Fitch said.
The low cap rate indicates the property commands a premium price even though its cash flow may be relatively low — a typical trait for trophy properties.
The Seagram Building is located on Park Avenue in Manhattan, blocks away from Grand Central Station, providing connectivity to many New York suburbs. Fitch noted that the property received a LEED Silver ESG certification and in 2022 constructed an amenity complex that offers fitness facilities and athletic courts, flex spaces and conference rooms. Its anchor tenant is Blue Owl Capital, a top alternative investment asset company.
