A group of banks led by Wells Fargo and Goldman Sachs are marketing a mega commercial mortgage-backed bond for a US$3bn financing package for a newly-built and second tallest office tower in New York City.
The deal will likely test investor appetite for office CMBS as some companies are planning to bring workers back to the office as more people have received the Covid vaccines. The SASB deal was announced on Wednesday and is expected to price next week, a buyside source said.
The single-asset, single-borrower transaction, SLG Office Trust 2021-OVA, will raise money to refinance a US$1.4bn construction loan on the property in midtown Manhattan, called One Vanderbilt. Proceeds will also be used to return US$1bn in equity to its sponsors and fund upfront reserves totaling US$70.9m for outstanding costs and US$151m for free and gap rent. The rest of proceeds will fund other lease and improvement costs, Fitch said in a pre-sale report.
There remain concerns about a structural decline for office space, especially in large metropolitan areas. Office occupancies across major cities have fallen as a major of employees have worked remotely since the pandemic. But the fall in occupancies in major metro office properties in CMBS deals has not be severe enough to warrant alarm for now, research firm Trepp said.
Office CMBS delinquencies continue to recede from their pandemic peaks, falling to 4bp to 1.83% in May, according to S&P. Confidence that top-tier tenants will fill up the One Vanderbilt will likely spur interest in this CMBS deal, a second buyside source said. TD Bank and The Carlyle Group are the building's two biggest tenants.
"This is a property that is already well leased and a top-tier asset. It will likely go well," the source said.
The average occupancy rate on office CMBS loans in the New York-New Jersey-Pennsylvania region slipped to 91.2% in April from 93.5% in March 2020 at the start of the virus breakout in the United States, Trepp data show.
"While the larger space inventory and the potential for lower demand due to hybrid work models will suppress re-absorption and keep a lid on asset values in the near term, concerns about the 'death of the office' or 'death of gateway cities' have largely been overblown," Trepp said in a report on Wednesday.
A risk seen for One Vanderbilt, Fitch says, is that its in-place leasing is below-market occupancy levels at 89.1% of net rentable area, "given that the property was newly developed and its operations have not yet stabilized." Average NRA in the area is 91.5%. One Vanderbilt's leasing level is catching up to its neighbors. SL Green Realty Corporation said on Monday TD Securities increased its presence to 142,892 square feet, making the dealer the building's fourth largest tenant, while InTandem Capital Partners and Sagewind Capital jointly signed leases for 2,163 square-foot of additional footprint on the property.
Real estate investment trust SL Green is the biggest sponsor of the 77-story building with 1.65 million square feet of space, which is next to the landmark Grand Central station and plays a part in the area's public transit upgrade. The REIT contributed US$1.56bn in cash for the building's construction. SL Green and other sponsors, including National Pension Service of Korea and Hines Interests Limited Partnership, will still have US$543m in equity in the project after the refinancing, the rating agency said.