A trio of well-known New York City-based real estate owner/developers have lined up a two-year extension on a hefty $216.7 million financing package backed by 500-512 Seventh Avenue, a 45-story, 1.2-million-square-foot office complex in the Garment District, Commercial Observer has learned.
Robert Verrone‘s Iron Hound Management Company advised Chetrit Group, Edward J. Minskoff Equities and The Moinian Group on the threesome’s modification of the underlying commercial mortgage-backed securities debt.
The total financing, comprised of a $196.5 million A-note (split across two Wachovia-sponsored conduits, WBCMT 2006-C27 and WBCMT 2006-C28) and a $20.2 million B-note, now has a new maturity date of November 2018, according to a source with intimate knowledge of the deal.
The debt had an original maturity date of Oct. 11, 2016, and was transferred to special servicer LNR on Sept. 12 for maturity default. The borrowers received a 60-day extension period, followed by a 30-day extension option, sources told Commercial Observer on the condition of anonymity.
The two-year extension was requested in order to give the borrowers some extra time to increase occupancy at the property and make capital improvements, according to the sources. Occupancy was 67.5 percent as of September, down from 96 percent at the time of the deal’s securitization in 2006, according to data from Trepp.
The 2006 vintage deal is part of a wave of maturing CMBS deals, and while many borrowers have chosen to refinance now because of historically low interest rates, attempting to secure new debt on 500-512 Seventh Avenue while occupancy is low could prove costly for the borrowers, even in today’s lending environment. “Rates wouldn’t be low for these borrowers as they only have 67.5 percent occupancy so any bank that lends them money today would likely be on a bridge loan basis, which would probably carry 400 to 500 more basis points on a rate than traditional or conventional financing,” one of the sources said.
“It makes sense for borrowers, but for the trust it’s a different story,” the source told CO. “The anticipated repayment of the debt is typically 10 years with a CMBS loan. The extension will prolong the repayment of that debt for two years, which could expose bondholders to losses if the property isn’t repositioned adequately. They modeled the return off that capital for 10 years but it’s not being returned in 10 years—it’s coming back in 12 years. Additionally, in being a pari-passu loan [a loan split across two transactions], the risk exposes bondholders in two different trusts.”
At the time the mortgage on 500-512 Seventh Avenue was originated, it carried a total balance of $298.8 million across the two CMBS notes, as well as $25 million in mezzanine debt which was paid off during negotiations for the first extension period.
Representatives for Chetrit Group, Edward J. Minskoff Equities and Iron Hound did not respond to requests for comment. A spokeswoman for The Moinian Group was not immediately available.