Lenders Come Out Strong for Two $70M Financings for NYC Office Buildings

Tangible evidence of the defrosting of credit markets continues to emerge.

March 24, 2010
By Barbra Murray, Contributing Editor

Tangible evidence of the defrosting of credit markets continues to emerge. In New York City, real estate services firm Newmark Knight Frank orchestrated financing of $70 million each for the office buildings at 515 Madison Avenue and 40 Worth Street without having to search high and low for interested lenders.

Acting on behalf of 53rd Street Associates L.L.C., a joint venture involving the Gural and Hemmerdinger families, Newmark secured a $70 million loan from Wells Fargo Bank for the joint venture’s acquisition of the fee and leasehold interest in 515 Madison from the Malloy and Sheffer families in a transaction that valued the 340,000-square-foot office asset at $150 million.

Built in 1932, the 42-story tower caught the eye of numerous potential lenders who were attracted to the property’s strong ownership, recent and impending renovations, and leasing activity. With new upgrades to offer and future changes that will yield LEED certification, 515 Madison was able to lure tenants to soak up a total of 100,000 square feet over the last 12 months, leaving the property 89 percent occupied.

Newmark also obtained $70 million in financing for the 700,000-square-foot building at 40 Worth Street in Tribeca on behalf of borrower 40 Worth Street Associates L.L.C. The 16-story office facility, originally developed in 1929, features ground-level retail space and is presently over 90 percent leased. In one of New York City’s biggest office lease deals of 2009, clothing retailer The Gap signed a lease for 265,000 square feet at 40 Worth, and in connection to that agreement, the building owner is investing $15 million in renovations. Capital One was the lead lender for the financing transaction, and TD Bank participated as well.

The two transactions serve as further indication of the onset of an eagerly awaited change in the lending community’s willingness to make loans.

“What you’re seeing started in late 2009; more lenders started coming back into the market,” Paul K. Talbot, Principal with Newmark Knight Frank Capital Group, told CPE. “Conduits like JP Morgan, Bank of America and Deutsche Bank are back looking at loans.”

But they’re not doling out financing for just any property; it’s all about high quality. “There’s a huge supply of money looking for quality properties, but there aren’t enough,” Talbot said. “So if an owner has a quality property, he’s going to have a bidding war. There’s a lot of money chasing few deals, so it will be interesting.”

While the credit markets are becoming a little friendlier, not everything is changing. “Underwriting won’t go back to what it was in 2007, but it will probably go back to what it was around 2002 and 2003 when spreads were in the 150 to 200 range; in 2007, spreads were in the 70 to 80 range.”