July 17, 2020
By Paul Bubny
Last month, SL Green Realty Corp. closed on a $510-million mortgage financing that was secured by 220 E. 42nd St., an Art Deco office tower in Midtown Manhattan and was provided by a lending group led by Aareal Capital Corp., Citi and Credit Agricole. “This transaction is another example of the significant liquidity in the NYC market, as well as a testament to SL Green’s relationship with the lending community and its continued confidence in our platform,” said SL Green president Andrew Mathias.
Was this deal–and the $2.4-billion refinancing Walker & Dunlop arranged with Fannie Mae in late April–an outlier in the current environment of pandemic-mandated shutdowns and economic uncertainty? Actually, it might not be. Since that large-scale Manhattan financing in June, three months after a sale of the property fell through,Connect Media has reported a significant number of financing transactions in the nine-figure and high eight-figure ranges. They include the following:
• San Diego-based BioMed Realty secured $165 million in financing for 5300 Chiron Way in Emeryville, CA. The Class A life science building, which totals 303,509 rentable square feet, is located within BioMed Realty’s campus, known as the Emeryville Center of Innovation. NKF’s Ramsey Daya and Chris Moritz helped arrange the financing on behalf of BioMed.
Daya says, “The lender stood out in a competitive landscape and was able to execute efficiently in a challenging environment.”
• Lionheart Strategic Management and Bank OZK closed on a $120-million loan to Alterra Group. The financing will be used to fund the ground-up construction of a mixed-use project at 510 N. Broad St. in Philadelphia. Bank OZK provided $107.5 million as the senior secured lender. Lionheart, an affiliate of Fisher Brothers, provided $12.5 in mezzanine financing.
• Bellwether Enterprise Real Estate Capital closed five transactions totaling $294,239,000 in Fannie Mae loans for manufactured housing communities across the country. The firm’s MJ Vukovich and Ghazy Grijalva arranged all five deals.
“These deals prove what we know to be true: the manufactured housing asset class is incredibly resilient,” said Vukovich.
• Sterling Bay closed on $174.5 million in financing for the construction of 300 N. Michigan Ave. in Chicago, a 47-story hotel and residential tower to be developed in partnership with Magellan Development Group. The capital structure includes senior-secured financing from Bank OZK, mezzanine financing from Pearlmark Real Estate and Monroe Capital and a crowd-sourced equity component fundraised through CrowdStreet.
“We are extremely proud that financing has successfully crossed the finish line despite the pandemic,” said Sterling Bay CEO Andy Gloor.
• CBRE arranged a $161.5-million loan to refinance Crystal House, an 825-unit apartment community in Arlington, VA, near the site of Amazon’s future HQ2.The firm’s Michael Sherman, Irene Lu, Michael Riccio, Susan Larkin and Anna Pfau secured the Freddie Mac financing on behalf of the borrower, a partnership between Roseland Residential Trust and an investment fund advised by UBS Realty Investors.
• Boutique investment bank Ziegler recently closed on $110,875,000 Series 2020 Bank Bonds to finance an expansion at Westminster. The property is a continuing care retirement community in west central Austin, TX.
The search for financing began pre-pandemic last December and the lending environment changed in the interim. “I am proud that the entire team reacted quickly and we were able to provide a financing solution at an attractive cost of capital in the midst of the COVID-19 pandemic,” said Brandon Powell, managing director at Ziegler.
• Madison Realty Capital originated $150 million in financing for a Los Angeles property portfolio. It’s sponsored by WS Communities and comprised of six multifamily assets in Santa Monica and the San Fernando Valley and a large-scale multifamily development site in Santa Monica.
Avison Young’s Justin Piasecki, Jay Maddox and Ethan Blum brokered the loan deal, with RST Capital Partners’ Rahim Thobani advising on the transaction.
• Meridian Capital Group arranged $92 million to refinance a multifamily portfolio of four properties in Newark, Dover and Wilmington, DE. These transactions were negotiated by Meridian’s Iselin, NJ-based Israel Schubert and Josh Munk. Marc Soto led the financing on behalf of Capital One. “Despite the challenges and hurdles encountered as a result of COVID-19, Meridian was able to negotiate a truly remarkable large cash-out refinance featuring full-term interest-only payments at rates below 3.00% during the height of the pandemic,” said Munk.
This compendium is by no means exhaustive, and there have been other major financing transactions that haven’t been publicly reported due to confidentiality agreements. Challenges notwithstanding, “Larger deals could get financed in this market,” George H. Mitsanas, Los Angeles-based principal at Gantry, Inc., tells Connect Media. “Today’s reality on how a loan is underwritten is a different world when compared to, say, February.”
Low LTVs, says Mitsanas, “will command generational pricing. Deals will get priced well under 3% for long-term, fixed-rate pricing.”
Conversely, “mid-range to higher LTVs will cause lenders to stress test all components of the underwriting with an eye towards lowering the actual NOI.” Mitsanas says. “Rental rates, occupancy, sponsor’s financial condition, tenant’s financial outlook, demand, etc. will all be looked at very closely.
“Lenders are concerned that today’s rent roll will decline in the coming months or year,” he continues. “Cost of capital for these types of loans will require a fairly healthy spread over the respective indexes. Nevertheless, there is capital available and the absolute interest rate will still be very good in historic terms.”
At Meridian, New York City-based senior managing director Ronnie Levine offers a comparable perspective. “There is definitely more liquidity in the market today for larger transactions as compared with a few months ago,” he says. “We have seen the CMBS lenders actively looking to originate loans and rebuild their pipelines. Life insurance companies are also actively seeking new originations on larger, high-quality transactions.”
Pictured: 5300 Chiron Way.
For comments, questions or concerns, please contact Paul Bubny