Meridian Capital Group
Dissecting the Deal with Drew Anderman
Meridian Capital Group July 6, 2016, 9:46 a.m.
When investors needed a $180 million loan for their $286 million purchase of the ground beneath the Carnegie House, a co-op on West 57th Street, they turned to Drew Anderman and his team at Meridian Capital Group, knowing they had the specific expertise to deal with the transaction’s complexities.
Anderman – a 20-year veteran of real estate finance including time at Deutsche Bank, Credit Suisse, CIBC World Markets and Walker & Dunlop and responsible for over $15 billon in commercial financing throughout his career – joined the firm 2 1/2 years ago to augment its institutional capabilities and reinforce Meridian’s position as one of New York’s strongest firms for deals of great size and complexity.
Meridian closed over $35 billion in financing in 2015, negotiating more $50 million loans in New York City than any other firm. Anderman and his six-person team expect to close $3 billion in business in 2016, including having helped secure $1.2 billion in financing for RXR Realty’s acquisition of 1285 Sixth Avenue in May 2016.
The RXR deal is just the tip of the iceberg for the Anderman Team. “We just did a huge deal on Seventh Avenue, the conversion of a vacant office building to a new brand of hotel,” he says. “We are also currently marketing a $400 million ground-up condominium deal in this very challenging environment here in the city.”
Anderman’s success is based on deep knowledge and extensive research, ensuring he understands the myriad complexities of any deal.
“There’s seven of us on the team, and given the number of deals we’re working on, we divide and conquer,” he says. “We have a local bank expert, we have members well-versed in development and appraisal. My goal when I joined Meridian was to build a well-oiled machine, a diverse team with a lot of backgrounds that has all the bases covered. This is what the Anderman Team is today.”
FEAR OF THE UNKNOWN AND A PROCEEDS DISCONNECT
For the ground beneath the 324-unit Carnegie House, given that the building above it housed co-op apartments, projections for lenders considering the deal had to factor in a potential large rent reset down the line.
“The rent that the ground owner was receiving was around $4 million plus, and the purchase price was roughly $286 million. That’s a huge disconnect.”
The rent reset scheduled for 2025 could theoretically raise the rent from $4 million to closer to $30 million. This wide, unpredictable range was a significant obstacle for lenders.
“Unlike deals where the collateral above the land is an office building, this involves people’s homes. That was a challenge for a number of lenders who didn’t want to get into the what-ifs. What if they litigate? What if they go to court? There was uncertainty about what happens as there haven’t been a lot of these types of deals done.”
Anderman was confident he could secure $180 million of the $286 million purchase price with a long-term, fixed-rate loan. He approached twelve lenders along the way, many of whom couldn’t get past the chasm between the loan amount and the NOI.
CLOSING THE GAP (AND THE DEAL)
Anderman ultimately obtained the $180 million from Natixis – a CMBS lender that Anderman knew was seeking to increase their footprint in NYC – by compiling formulations of potential outcomes of the rent reset, including best case scenarios of maximized co-op value, and down-side scenarios where the co-op reverted to all rentals. There was added complexity of certain units potentially falling under rent control as the building was previously a rental building.
“We spent a lot of time thinking about how to get a good amount of leverage,” says Anderman, “and we did it by convincing the lender that the value was there – that under different scenarios, the ground rent would go up by enough to justify the $180 million loan amount.”
Another part of Anderman’s strategy was calculating the best formula for buying the interest rate down, bringing it from 4 1/2 percent to just over two percent in a 20-year overall loan with a five-year, interest-only fixed rate. The loan structure also included an ARD – anticipated repayment date – that encourages five-year repayment, but doesn’t force the borrower’s hand in the event they haven’t worked out a deal with the co-op owners in advance of the reset.
In a deal with numerous complications, Anderman and his team perfectly demonstrated the depth of their expertise in handling any situation, no matter how complex.
“It was a challenging assignment that took us two months working back and forth,” says Anderman, “allowing us to ensure that the buyer got a great execution.”