Peter S. Kalikow, a leading New York City real estate investor, is tapping the securitization market for a cash-out refinancing of a 1.3-million-square foot, 48-story building at 101 Park Avenue.
On Aug. 1, Kalikow obtained a $365 million first lien mortgage on the property; proceeds were used to repay a $300 million loan obtained from Bank of America four years ago that was securitized in a transaction called BAMLL 2012- PARK, pay $10 million in defeasance costs, fund a $6.3 million reserve for outstanding landlord obligations and return $45.8 million of equity to the borrower.
The new loan, which pays a fixed rate of interest of 4.1%, and no principal, over its entire 10-year term, is being used as collateral for a new offering of mortgage bonds called BAMLL 2018-PARK, according to rating agency presale reports.
Kroll Bond Rating Agency and Fitch Ratings both expect to assign a triple-A rating to the senior tranche of notes to be issued.
101 Park Avenue is a trophy asset in a premier location, both rating agencies agree. Kroll calls it “one of the highest quality office buildings in Midtown Manhattan south of 42nd Street, and notes that it is one to two blocks south of Grand Central Terminal, a major transportation hub in New York City.
The property, which was built by Kalikow in 1982, has 1.2 million square feet of office space and approximately 105,000 square feet of retail, storage and garage space. As of May, it was 89.7% leased to 30 tenants. The three largest tenants (41.1% of square footage; 48.5% of base rent) are all law firms: Morgan Lewis & Bockius, Kelley Drye & Warren, and Curtis, Mallet-Prevost, Colt & Mosle.
Approximately 50% of the subject’s square footage is occupied by tenants that have had a presence at the building since its construction, and three tenants representing 27.2% of base rent use the asset as their headquarters location. The property has maintained an average occupancy of 94% since 2006.
Kroll and Fitch also agree that the loan is conservatively leveraged; Kroll puts the loan-to-value ratio at f 55%, which is the second lowest among the 24 transactions it has rated backed by a single building in New York City. (The loan with the lowest LTV, as measured by Kroll, was the prior loan on 101 Park Avenue.)
Fitch puts the leverage even lower, a 53.5%.
Both rating agencies calculate LTV based on their own valuation of the property. Based on the appraiser’s value of $1.5 billion, Kalikow has another $1.1 billion of implied equity, Fitch notes.
Another plus: unlike many recent securitizations of a single commercial mortgage, there is no additional subordinate indebtedness held outside the trust, and future additional debt is not permitted.
The building’s in-place rents are also notably below market, which could allow the sponsor to increase rental rates as tenants renew or sublease tenants sign direct leases. However, there is additional office supply under development. Six projects totaling 9.0 million sf are currently under construction in Midtown Manhattan.
Approximately 69.5% of the new supply has either been preleased or is under contract to be sold. Each of the projects is scheduled to be completed by 2020.
Kroll notes that Kalikow is permitted to encumber the property with property-assessed clean energy loans, with the lender’s consent and a confirmation from Kroll and Fitch that this would not result in a ratings downgrade. The PACE loan will be senior to the mortgage loan and be repaid through multi-year special tax assessments on the property. This could negatively affect cash flow by encumbering the property with higher taxes.
