Vornado Realty Trust is involved in its second single-property securitization of a premier New York office site this week.
On Wednesday, Standard & Poor’s and Morningstar Credit Ratings assigned preliminary ratings to VNDO Trust 2016-350P, a five-tranche, $223.3 million bond issuance notes that collateralize part of a $400 million mortgage for a Vornado-owned office building at 350 Park Ave along “Hedge Fund Alley” in midtown Manhattan.
The senior-most notes in the transaction are a series of Class A notes with ‘AAA’ structured financing ratings for a preliminary par amount of $94 million; next in line in the capital stack are B bonds totaling $20.9 million (rated ‘AA-‘ by both agencies) and $14.4 million in class C notes rated ‘A-’.
The Class D bonds (‘BBB-’)and the Class E bonds (‘BB-’) are the most subordinate tranches in the income fee stream from the collateral, but also together represent nearly half of the notional amount of the deal at $46.8 million and and $57.13 million, respectively.
There are corresponding interest-only note tranches for the A and B notes. The A and B notes being retained by the trust will be pari passu with the two other senior notes totaling $166.67 million that are not included in the VNDO transaction.
The 10-year, interest-only loan (with a rate of 3.92%) was underwritten by Goldman Sachs, Deutsche Bank and German American Capital Corp., is expected to close Dec. 23. The loan provides $106.9 million of equity to Vornado, which still maintains “substantial” equity of $310 million in the appraised $710 million structure, according to Morningstar.
The 30-story building, located between 51st and 52nd, is home to high-end tenants Ziff Brothers Investments, M&T Bank and Fidelity Investments, and has been a “destination address” that is “replete” with amenities including landscaped terraces on two separate floors. The mortgaged collateral is 97.2% leased, according to S&P, and has a healthy 1.94x debt-to-service income ratio thanks to strong occupancy levels in the 55-year-old building’s recent history.
S&P noted that Ziff, the largest tenant by space occupancy (50.3%) and total rent income (49.1%) has an expiring lease in five years, and already subleases more than half of its square footage. The VNDO transaction, however, requires that the loan send excess cash flow into a re-leasing reserve up to $25 million if Ziff does not renew its lease at least 18 months prior to April 2021.
Vornado, one of the nation’s largest real estate investment trusts, includes 350 Park East among is 36 Manhattan properties with a total square footage of 20.2 million square feet. Vornado has invested more than $20 million in capital improvements in the building. Earlier this week, presale reports were issued on another property co-owned by Vornado principals at 85th East Avenue in the Chelsea submarket.