A $3.5B Test Case for Office Refinancing

If someone tests the temperature of water by sticking a toe in, it looks as though the owners of Manhattan’s Rockefeller Center took a long dive into the center of a lake.

Owner Tishman Speyer Properties is readying a plan to raise $3.5 billion to refinance the massive urban office tower, according to the Financial Times. Bank of America and Wells Fargo are reportedly involved, and the Canada Pension Plan Investment Board was involved in talks according to insiders.

The deal is one of many that will have to take place if office markets are to eventually work their way out of the dumps and back to a level of normalcy. The deal could indicate whether the largest, most iconic properties can attract the money necessary to refinance at fiscally realistic rates.

Rockefeller Center has developed high occupancy rates and visitor engagement in the mixed-use property. There are restaurants, stores, plus Radio City Music Hall, and the annual Christmas tree lighting. Office tenants include NBC Studios, Lazard, Deloitte, and other major factors. Sources for the Financial Times say that the properties are 93% occupied.

But refinancing won’t be a lovely walk through the ark for Tishman. Many prospective investors are way about what has happened to the category since the Federal Reserve raised interest rates in an attempt to push down inflation.

There are significant risks. If refinancing involves a single borrower, the amount of risk can be concentrated. If anything goes wrong — mismanagement, a loss of major tenants — there is only one borrower on the loan to turn to.

There have been too many examples of major investors having turned the keys back and walked away from a problem. Investors in the AAA tranche of the $308 million debt backed by 1740 Broadway in midtown Manhattan only got 74% of their investment back after the loan sold at a steep discount. Creditors in the five lower groups were wiped out. As many loans were made on a non-recourse basis, there may be few options for the lenders.

Moody’s has said that one sign of things improving in the office market is large buildings selling for losses over $100 million because it’s an indication of things reaching a bottom. While there has been an increase in such losses, investors keep looking around as they don’t want to be part of the trend to settle markets.