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The owner of the fully occupied office tower at 731 Lexington Ave. extended its mortgage by another four months days before the $500 million loan came due last week.
By kicking the can, building owner Alexander’s Inc. evidently hopes it can lock in a lower interest rate before the extension granted by Deutsche Bank and Citigroup expires in October. The modification, which came at a cost of $10 million paid against the principal, may also signal how reluctant banks are to write large loans for even healthy office buildings such as the 57-story 731 Lexington. The 1.3 million square-foot tower is 100% occupied, according to bond-rating firm KBRA, and last month anchor tenant Bloomberg LP agreed to retain all its 900,000 square feet of space through 2040.
“The market is really tough,” said Piper Sandler analyst Alexander Goldfarb. “Shopping centers can get loans; office buildings are a much tougher proposition.”
Alexander’s, which is managed and one-third owned by Vornado Realty Trust, expects to complete the refinancing by Oct. 11, according to a regulatory filing last week. 731 Lexington’s floating-rate mortgage has jumped to 6.2% from 1.4% over the last two years, tripling the landlord’s quarterly interest and debt expense to $16 million. A spokesman didn’t respond to a request for comment.
In an indication of the refinancing challenges facing even the best buildings, about two weeks after Bloomberg said it would extend its lease at 731 Lexington by 11 years, the mortgage was transferred to special servicing, which is where troubled loans get worked out. Alexander’s proposed a four-year extension in exchange for paying down $25 million of the mortgage, Morningstar Credit said, but the special servicer rejected that offer. In return for the four-month extension that lenders did agree to, Alexander’s agreed to pay down $10 million of the mortgage. Alexander’s holds $526 million in cash.
“The borrower did not have time to refinance by the June 2024 maturity given the uncertainty at the time of the Bloomberg lease and the capital markets environment for an office loan of this size,” Morningstar said last month.
The market environment has improved since then, however. Yields on the benchmark 10-year government bond dropped to 4.21% last week after better-than-expected inflation data sparked hopes once again that the Federal Reserve will cut interest rates sometime in the next several months.
“Number of rate cuts may be debatable,” Evercore ISI real estate analyst Steve Sakwa said in a note to clients today, “but [the] bond market is becoming our friend.”
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Aaron Elstein , 2024-06-17 21:01:00
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