David Rosenberg and Seth Grossman of Meridian's New York City office negotiated on behalf of the borrowers, Jeff Sutton of locally based Wharton Properties and Manhattan based SL Green Realty Corp., to secure an interest-only, floating-rate loan. The JV partnership was created to identify and invest in under-performing retail assets. The first venture was to acquire the fee interests in two adjoining retail buildings at 1551 and 1555 Broadway, and in a third retail and commercial building at 21 W. 34th St. The second joint venture included acquisition of a mixed-use property at 141 Fifth Ave. The transactions totaled approximately $162.5 million.
After purchasing the property several years ago, Sutton bought-out Hugo Boss from its ground-floor retail lease and then signed luxury retailer Armani to a 15-year, multi-floor lease, for more than 40,000 sf. The four-level retail condominium at 717 Fifth Ave. boasts a three-story glass atrium. Laura Pomerantz of PBS Real Estate represented Armani in that transaction. The space is currently being built-out by Armani and the anticipated opening will be early 2009, which Grossman says is still on track.
Grossman tells GlobeSt.com that completing the refi now was extremely important. "Existing debt came due on the day that we closed with no extensions—it needed to happen with no room for error or the borrower would have needed to write a check for $192 million to payoff the existing that day." He continues "that timing was on there side however, because the Armani lease was signed and Hugo Boss was bought out of their space to make that happen since the initial mortgage was put on." The borrowers increased rents "tremendously" since the original financing, which is why, Grossman says, "the borrowers were able to replace a $192.5-million loan—which included roughly $60 million of mezz--with a new first mortgage of $285 million."
Rosenberg tells GlobeSt.com that refinancing for anything is more of a stretch now, and is not at all limited to retail. "Deals are getting done with two, three, and four times more work than they used to, and terms are often less favorable," he says. "This deal was great, but also an atypical transaction because it has class A everything--location, building, tenants, borrowers, and the business plan was executed.
Grossman says that general refinances are much tougher across the board. "Deals are getting done, but they are not under terms people are necessarily happy with. Borrowers are literally having to come out of pocket for some deals to refinance in order to payoff their existing, even in cases where they executed their plans because the deals were simply over leveraged to begin with and that type of financing is not available."
Grossman continues that getting a loan in today's environment was hard. "This was one of the most difficult deals I have ever worked on, solely because of the lenders backing out of the market," he says. "The asset is fantastic… .Historically this deal would have been simple and just a function of beating up lenders for the highest dollars and lowest spread. This time it was not nearly that simple, and many of our initial, most ideally suited lenders couldn't even bid the loan at all because they were totally closed down."
Grossman explains that "others that loved the deal--and thought they were going to win it--bid about $160 million or $200 million etc. The entire process was very challenging and filled with fluctuations of highs and lows. The loan closed because all sides worked very, very hard and well together to close what at the end of the day was a fantastic loan, especially for this environment.
According to SL Green's website, there are a few units available at 717 Fifth Ave. A first floor retail space has an asking price is $250 per sf, and a fourth floor office space has an asking rent of $80 per sf.
Jeff Sutton of Wharton Properties owns more than one hundred properties and has developed Manhattan trophies such as 609 Fifth Ave.--flagship store for American Girl Place--720 Fifth Ave.--flagship store for Abercrombie and Fitch--and 1551 Broadway in Times Square, currently being developed to be the Flagship store for American Eagle, which are owned through JVs with SL Green. SL Green owns more then 30 New York City office properties consisting of roughly 24 million sf.
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Natalie Dolce
Natalie Dolce, editor-in-chief of GlobeSt.com and GlobeSt. Real Estate Forum, is responsible for working with editorial staff, freelancers and senior management to help plan the overarching vision that encompasses GlobeSt.com, including short-term and long-term goals for the website, how content integrates through the company’s other product lines and the overall quality of content. Previously she served as national executive editor and editor of the West Coast region for GlobeSt.com and Real Estate Forum, and was responsible for coverage of news and information pertaining to that vital real estate region. Prior to moving out to the Southern California office, she was Northeast bureau chief, covering New York City for GlobeSt.com. Her background includes a stint at InStyle Magazine, and as managing editor with New York Press, an alternative weekly New York City paper. In her career, she has also covered a variety of beats for M magazine, Arthur Frommer's Budget Travel, FashionLedge.com, and Co-Ed magazine. Dolce has also freelanced for a number of publications, including MSNBC.com and Museums New York magazine.
