A Silverstein Properties partnership that’s seeking a $360 million loan on the office building at 1177 Avenue of the Americas in Manhattan is in line for a rock-bottom interest rate.
With Treasury yields plummeting and commercial MBS loan spreads on trophy properties tightening, the partnership will likely end up with a rate well below 3% on a seven-year loan. That would be one of the lowest coupons on a long-term mortgage in the current cycle.
The assignment is being pitched to balance-sheet lenders and CMBS shops via Eastdil Secured. CMBS programs appear to have the edge, one market pro said, because the borrowers are focusing on achieving the best pricing rather than flexibility on loan terms, and securitization platforms are currently willing and able to offer cheaper debt because of the prevailing spreads in the CMBS market.
Lenders in the mix said they are hearing that the loan’s coupon will be pegged to only about 90-95 bp over seven-year Treasurys, thanks to the loan’s low leverage and the strong institutional sponsorship. Since the beginning of this year, the seven-year Treasury yield had hovered between 2% and 2.3%. But a flight to quality this week touched off by plunging stock prices drove down the yield, which briefly hit 1.5% on Wednesday before rebounding to 1.8% yesterday. If that level holds, it would put the loan’s coupon around 2.7%.
With Treasury yields plummeting and commercial MBS loan spreads on trophy properties tightening, the partnership will likely end up with a rate well below 3% on a seven-year loan. That would be one of the lowest coupons on a long-term mortgage in the current cycle.
The assignment is being pitched to balance-sheet lenders and CMBS shops via Eastdil Secured. CMBS programs appear to have the edge, one market pro said, because the borrowers are focusing on achieving the best pricing rather than flexibility on loan terms, and securitization platforms are currently willing and able to offer cheaper debt because of the prevailing spreads in the CMBS market.
Lenders in the mix said they are hearing that the loan’s coupon will be pegged to only about 90-95 bp over seven-year Treasurys, thanks to the loan’s low leverage and the strong institutional sponsorship. Since the beginning of this year, the seven-year Treasury yield had hovered between 2% and 2.3%. But a flight to quality this week touched off by plunging stock prices drove down the yield, which briefly hit 1.5% on Wednesday before rebounding to 1.8% yesterday. If that level holds, it would put the loan’s coupon around 2.7%.
New York-based Silverstein currently owns the 47-story tower in partnership with California State Teachers. UBS is buying an unspecified piece of the ownership, and the loan is being sought in conjunction with that recapitalization.
Lenders said the proposed mortgage would equal only about 40% of the property’s value. The debt yield, which measures net operating income as a percentage of the loan amount, would be a solid 10.4%.
The 1 million-square-foot building, which stretches from West 45th to West 46th Streets on the west side of Avenue of the Americas, is 92% leased. Law firm Kramer Levin leases 283,000 sf.
Lenders cite spread compression as an ongoing theme in the market. The loan sought by the Silverstein partnership is viewed as something of an outlier, given the low leverage and strong sponsorship. But it illustrates how competition has driven down pricing on trophy properties.
Only a few giant securitized mortgages on New York office properties have carried coupons in the 3% area over the past two years. In March 2013, a Silverstein-UBS Trumball Property Fund partnership lined up a seven-year loan with a 2.72% coupon on the leasehold interest in the 1.9 million-sf office building at 120 Broadway.
Well Fargo securitized the $310 million interest-only mortgage via a stand-alone deal (WFCM 2013-120B). The loan-to-value ratio was 51.7%. The day the loan closed, the seven-year Treasury yield was 1.4%, indicating that the loan spread was approximately 130 bp.
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