Life After Amazon for Long Island City’s One Court Square

Ratings agency DBRS’s new report forecasts outcomes for the property in light of a looming $315 million loan maturity and the 1 million-square-foot vacancy that the e-commerce giant had planned to fill.
Gwen Roush, DBRS
Gwen Roush, Vice President of North American CMBS, DBRS

The 1.5 million-square-foot One Court Square office tower in Long Island City, N.Y., is facing a $315 million loan maturity date and now that Amazon has canceled plans to establish half of its second North American headquarters in the city, the trophy property is also looking at a 1 million-square-foot vacancy. Despite the daunting circumstances, however, One Court Square still has the potential for success and the likelihood of loan repayment remains strong, according to global credit ratings agency DBRS’s new report, Queen for 90 Days—What’s Next for Long Island City’s One Court Square?

In November 2018, Amazon announced it would divide its $5 billion HQ2 development between Long Island City and Northern Virginia. In mid-February 2019, amid local opposition to the project, the e-commerce giant withdrew the Long Island City plan. Amazon had  arranged to establish the first phase of the headquarters at real estate investment manager Savanna’s One Court Square, where Citigroup Inc., which has been the 52-story building’s sole office tenant since its 1989 opening, will downsize and vacate 1 million square feet by the end of May 2020. The $315 million property-backed loan—$265 million of which is divided into pari passu pieces across four CMBS transactions, including the DBRS-rated Wells Fargo Commercial Mortgage Trust 2015-NXS3 pool—is scheduled to mature in September 2020.  

After the 90 days

“Although the latest developments with Amazon mean it’s back to the drawing board for One Court Square, DBRS believes that the property remains well positioned to benefit from the recent development boom in LIC that has brought significant investment and population to the area,” according to the report. Long Island City’s easy access to Manhattan and comparatively lower apartment rental rates has spurred significant development in the multifamily arena. And the increasing number of employers seeking to tap into the local talent pool has triggered more office development.

“Given [One Court Square’s] location and the strength of the real estate market in Long Island City, a trend that was established long before Amazon came calling, DBRS believes the loan characteristics are conducive to a successful refinance,” Gwen Roush, vice president, North American CMBS with DBRS, told Commercial Property Executive. As noted in the report, Citi’s near-term lease expiry was contemplated at issuance for the WFCM 2015-NXS3 transaction and a structure was put in place to mitigate the risks; the loan is structured with a cash flow sweep that will yield approximately $35 million in leasing reserves. Additionally, there’s a healthy exposure of $225 per square foot on the senior debt and a $20 million equity contribution made by the loan sponsor at closing.

In addition, and possibly more noteworthy, the sponsors contemplated the possibility that any space vacated by Citi would be converted to condo use, a possibility DBRS believes remains financially feasible five years post-closing for the existing CMBS debt,” Roush said.

More possibilities

One Court Square holds the distinction of being the tallest building in New York City outside Manhattan and, as a result of a 2011 renovation, it sits atop the Court Square subway station. The same amenities that attracted Amazon could attract other tenants to the square footage Citi will vacate next year. “Should the office space be retained, DBRS believes it is more likely the sponsors would target a multitude of sectors and businesses to backfill the space, marketing the property based on its status as a Class A property with superior transit access,” noted Roush. “Those efforts would likely get a significant lift from the sharp population growth in the area and the desire for many professionals to work close to where they live.”

Image courtesy of DBRS