Boston Properties Lands $1B Loan on 601 Lexington Avenue in Midtown East
Boston Properties, the largest publicly traded developer and owner of high-quality office assets in the country, has nabbed $1 billion in debt to refinance its 59-story office tower at 601 Lexington Avenue in Midtown East, according to information from Moody’s Investors Service.
Wells Fargo, Deutsche Bank, Morgan Stanley and Citigroup provided the financing, $426.7 million of which is set to be securitized in the BXP Trust 2021-601L single-asset, single-borrower commercial mortgage-backed securities (CMBS) transaction, per Moody’s analysis of the CMBS deal.
The 10-year, fixed-rate first-lien mortgage is backed by Boston Properties and partner Norges Bank Investment Management’s (NBIM) fee simple and leasehold interests in the office condominiums that comprise 601 Lexington Avenue, as well as the property’s recently renovated six-story office and retail mixed-use atrium, per Moody’s. NBIM bought a 45 percent interest in Boston Properties’ 601 Lexington Avenue and both 100 Federal Street and Atlantic Wharf in Boston in the fall of 2014 for $1.5 billion, forming a joint venture between the two companies.
There was about $620 million in existing mortgage debt on the property — located between East 53rd and East 54th streets — that was set to mature in April 2022, Michael LaBelle, Boston Properties’ CFO, said in the company’s third-quarter earnings call.
LaBelle added that the forthcoming maturation was one of the only significant debt maturities that the firm was staring down over the next 18 months.
It’s clear that it was important to Boston Properties to get this refinancing across the finish line to not only take advantage of the low interest-rate environment that still remains but to also lower its interest expenses before next year. The old debt that encumbered 601 Lexington carried an “above market” interest rate of 4.75 percent, LaBelle said. This new, $1 billion financing the firm just closed carries a much more favorable rate of 2.8 percent, according to data from Moody’s.
“Given the increase in the cash flows from the building, owing partially to the redevelopment we completed earlier this year, we anticipate that we will be able to increase the size of the financing and reduce the interest rate substantially,” LaBelle said during the call, adding that the firm had hoped to close the refinance before the end of the year so that the drop in interest expense would be “accretive to our 2022 earnings.”
Boston Properties just recently wrapped up a four-year-long, $283 million renovation of the property’s six-story mixed-use atrium, per Moody’s. The work led to the asset’s retail space being reconfigured to include more restaurant space, as well as the creation of a ground-level entrance and separate lobby off East 53rd Street.
Other work to the landmarked building included upgrades to the entryways and the main lobby, as well as the existing office space and ground-floor retail space within the six-story atrium. The second- through sixth-floor office suites were redeveloped, and a new office entrance was added. NYU Langone Health subsequently leased out the office space in the redeveloped atrium, per Moody’s.
In September, Boston Properties opened a large new food hall at the property called The Hugh, which has 17 restaurants and occupies space at the asset’s ground floor and lower level. The food hall was created as part of the renovation and was named after the late Hugh Stubbins of the now-defunct architecture firm Hugh Stubbins & Associates, which worked alongside Emery Roth & Sons to design the building decades ago. The tower was formerly known as the Citicorp Center.
Built in 1977, the roughly 1.8 million-square-foot skyscraper’s average occupancy rate since 2010 hovers around 98 percent. It is currently 84 percent leased to a mix of law firms that are on the Am Law Global 200 list, including one of the country’s largest firms, Kirkland & Ellis, which is by the far the largest legal tenant in 601 Lexington — occupying 37 percent of net rentable area, or more than 616,000 square feet. Kirkland & Ellis, a 112-year-old law firm, expanded its presence in the building in 2017; the company represents more than 39 percent of gross rent, per Moody’s. Other tenants include Citibank, London-based law firm Freshfields Bruckhaus Deringer and Blackstone (BX).
The significant financing comes despite the troubled office market in Midtown East and broader Manhattan that is still reeling from the impacts of the pandemic. In the third quarter, Manhattan’s office availability rate reached a record high of 18.7 percent, climbing for the fifth consecutive quarter, according to Newmark Knight Frank appraisal data from early November that was cited by Moody’s.
Newmark’s “as-is” appraised value of the property was $1.7 billion, and it established the asset’s market value upon stabilization to be $2 billion.
Mack Burke can be reached at firstname.lastname@example.org.