SL Green Realty Corp. and RXR Realty are tapping the commercial mortgage bond market to help finance the acquisition of a stake in one of the largest buildings in New York, Worldwide Plaza.
The two real estate investment firms recently obtained $1.1 billion in loans from Goldman Sachs and Deutsche Bank in order to purchase a 48.7% stake in the 1.8 million square foot, Class A property from New York REIT, which previously owned 98.8% of the property.
A $705 million portion of a $940 million first-lien, whole mortgage loan is being used as collateral for a securitization dubbed Worldwide Plaza Trust 2017-WWP. The bonds to be issued are also secured by a pledge of membership interest and certain mortgages on the property’s amenities parcel.
Morningstar expects to assign an AAA to the senior tranche of notes to be issued in the deal, which benefit from 53.56% credit support.
In addition to the first-lien mortgage, there is $260 million of subordinate mezzanine debt backed by equity interest in the borrowing entity, which is held outside the trust. Both the trust loan and mezzanine loan are structured with interest-only payments throughout their terms.
New York REIT will retain 50.1% ownership in the property, with George Comfort & Sons retaining a 1.2% interest.
Goldman Sachs will act as the retaining sponsor, according to Morningstar. It is expected to satisfy risk-retention requirements by selling an eligible horizontal residual interest to a third party, Core Credit Partners A, an affiliate of Square Mile Capital Management.
Morningstar’s primary considerations in rating the commercial mortgage bonds to be issued are the tenant concentration. Two tenants at Worldwide Plaza, law firm Cravath, Swaine & Moore and investment bank Nomura Holdings America, contribute 75.9% of Morningstar’s underwritten gross potential rent.
This creates the potential for volatility during the loan term, as the law firm's lease expires during the term and Nomura has contraction and early-termination options. However, Morningstar takes comfort from the fact that the tenants are good credits and have spent a significant amount of capital upgrading their spaces.
Additionally, in the event that the tenant contributing the most rent fails to sign a new or renewed lease within 12 months of the expiration of the existing lease, loan documents allow for the “sweep” of cash flow in order to capture $42.3 million in funds to cover releasing costs.
Morningstar rated the most recent securitization of the loan on Worldwide Plaza, COMM 2013-WWP, which has performed well and has never been delinquent over the life of the securitization.