Deutsche Bank and Goldman Sachs are marketing $600 million of bonds backed by a single, newly constructed Manhattan office building, 10 Hudson Yards.
Single-asset commercial mortgage bonds are inherently risky, and the 52-story 10 Hudson Yards is the first building to be completed in what is the largest private real-estate development in the United States. That means another 17 million square feet of mixed use space will be coming on line in this nascent sub-market.
However, the class A property is of very high quality and it is relatively unencumbered by debt, by recent standards, according to Moody’s Investors Service. It was designed by Kohn Pederson Fox Associates and built to a high level of specification, and is expected to gain a LEED Platinum certification. Amenities include parking, food hall, access to the High Line and the 7 subway line, and expansive views of the city and Hudson River from upper floors. “We view the subject as one of the premier office buildings in Manhattan,” the presale report states.
The owner is a joint venture among The Related Companies, L.P., Oxford Properties Group, JPMorgan Asset Management, Kuwait Investment Authority and Allianz HY Investor.
Deutsche and Goldman contributed $600 million of a $900 million first-lien mortgage as collateral for Hudson Yards 2016-10HY Mortgage Trust. That results in an in-trust loan-to-value (LTV) ratio of 81.12%. However the property is also encumbered by $300.0 million of subordinated debt not used as collateral, resulting in an LTV of 108.2%.
Also, the loan pays only interest, and no principal, for its entire, 10-year term. That means the borrowers will have to refinance the entire balance upon maturity, by which time the value of the property may have declined.
As of July 1, 2016 the Property is 93.2% leased. The subject achieved this level prior to the completion of the building's construction. Furthermore, executed leases have long terms providing minimal loan term rollover. Leases representing only 8.1% of net rentable area and 5.8% of base rent expire prior to loan maturity. The largest tenant in occupancy is Coach, rated Baa2 by Moody’s. This tenant accounts for a total of 38.3% of the rentable area and 38.8% of base rent subject to a lease expiring in 2036.
