Bank of America, Morgan Stanley, Goldman Sachs Mortgage Company and The Bank of Nova Scotia are providing a $1.25 billion mortgage to Toronto-based Hudson’s Bay Company to refinance the ground below its Saks Fifth Avenue building at 611 Fifth Avenue, according to a release from the borrower.
The lenders appraised the landmark building at about $3.7 billion, based on the assumption that the entire property is net leased at an estimated fair-market rent by the luxury retailer. HBC acquired the Saks retail chain, including its 650,000-square-foot flagship store in Midtown, last year for $2.9 billion.
The mortgage on the land underneath the prime retail space is due to close in December, at which point nearly 80 percent of HBC’s debt will be backed by real estate.
Proceeds from the 20-year mortgage will be used to permanently pay down approximately $1.2 billion of first-lien debt, which bears interest at a floating rate of 4.75 percent and matures in 2020, the release states.
The interest-only Saks Fifth Avenue ground mortgage will carry an estimated fixed rate of less than 4.4 percent and will not require any principal amortization over its 20-year term.
HBC previously announced plans for a $250 million renovation of the retail property, to begin in the first half of 2015, to enhance the store’s productivity.
The announcement of the refinancing and appraisal pushed HBC’s shares up as much as 12 percent, Bloomberg News first reported.
“As we advance our efforts to create and realize value from our substantial real estate portfolio, it became obvious to us that our Saks Fifth Avenue New York flagship was unique and we should treat this very special asset differently than our other properties,” HBC’s chief executive officer, Richard Baker, said in the release.