A debt package tied to a New York office tower will be the first of its kind to tap property securitization and public finance markets together, sources close to the deal said on Monday.
Some $1.275 billion of construction loans on Bank of America Corp's 52-story building, 1 Bryant Park, will be refinanced with commercial mortgage-backed securities and Liberty bonds, which were aimed at creating tax-free funding for lower Manhattan after the September 2001 attacks, the sources said.
Within the private deal managed by Bank of America and JPMorgan Chase, a $650 million, AAA-rated commercial property loan would be the largest to be securitized since the CMBS market reopened in late 2009.
The $700 billion CMBS market has been reawakened with help from a federal lending program and the improving economy, giving investors confidence they can judge the performance of the sector. But as lenders express a desire to lend, tight underwriting requirements and falling values on office, retail and apartment buildings have kept issuance at a trickle relative to the record years of 2006 and 2007.
Another $650 million in tax-exempt bonds will refinance an existing Liberty bond and carry ratings of AA, A, and BBB-, a source said. The Bank of America tower, although in midtown Manhattan, was able to garner financing as the Liberty bond program provided up to $2 billion for commercial projects outside the ground zero area of lower Manhattan.
The deal has been in planning stages for months, and according to investors coincides with solid demand for both asset classes.
The new mortgage debt is supported by equity in the 2.1 million-square-foot building, jointly owned by Bank of America and New York real estate developer Douglas Durst. The building was appraised on May 1 at $2.2 billion, suggesting a 59.1 percent loan-to-value ratio, according to the term sheet.
There appears to be a stabilization occurring in commercial property fundamentals, said Christopher Sullivan, chief investment officer at the United Nations Federal Credit Union in New York. Financing availability is slowly increasing with transactions, but at relatively conservative leverage.
The CMBS will be priced in about a week, and the Liberty bonds will follow, one source said.
(Reporting by Al Yoon; Editing by Leslie Adler)