Owners of two big Manhattan office buildings are refinancing, cashing in on recent price rises that some think may be just about over.
Douglas Durst is looking to refinance his recently completed office tower at Four Times Square, according to people familiar with the developer's plans. The 1.6 million-square-foot office building houses the publishing giant Conde Nast and the law firm Skadden, Arps, Slate, Meagher & Flom.
Meanwhile, Metropolis Realty, a private real estate investment trust controlled by financier Leon Black's Apollo Real Estate Advisors Fund, has tapped GE Capital Real Estate, a unit of General Electric, to refinance the mortgage on 1290 Avenue of the Americas.
The new loan would greatly increase the debt on the midtown office tower, which is the corporate headquarters of Equitable Life Assurance.
"Avenue of the Americas has been quite active in financing and sales in the past year," said Steven Kohn, managing director and head of capital markets at Sonnenblick-Goldman Co., a New York real estate investment bank. He attributed the activity to "a combination of debt coming due and owners wanting to cash out, believing that if this is not the peak of the market, we're close to it."
Observers raised their eyebrows last week when Tishman Speyer Properties said it planned to build an office building, without any tenants lined up in advance, at 41st Street and Third Avenue. That would be a milestone: the first speculative office building in New York since the 1980s.
But it's not as if there's a glut of new office space about to hit. At only 365,000 square feet, the proposed Tishman building would be "bite-size" by New York standards, said Stephen R. Blank, senior fellow for finance at the Urban Land Institute.
Of what little new construction there has been in recent years in New York, most has been built to suit large tenants, Mr. Kohn said. "With only one spec building on the horizon, you can appreciate what investors see in New York in terms of appreciation potential.''
Said Mr. Blank: "Things are active, but not frenetic. It's a controlled environment."
The mortgage on the Conde Nast building would replace a $360 million construction loan that Bank of New York syndicated two years ago. That loan comes due in April, but Mr. Durst is not under pressure to obtain permanent financing, because he has the option of extending it a year.
People familiar with Mr. Durst's plans said he is talking to several foreign banks and insurance companies, and looking for a mortgage of about $450 million. That would increase his proceeds, but it is still a conservatively low loan amount compared with the estimated value of the building, which is $700 million. Bank of New York, which has a longtime relationship with Mr. Durst, is representing him as agent.
According to market sources, GE Capital agreed to lend Metropolis more than $400 million against 1290 Avenue of the Americas. The mortgage would replace a $250 million loan made three years ago by Chase Manhattan Corp.
The property's value has certainly gone up since the earlier loan was made. According to a filing by Metropolis with the Securities and Exchange Commission, the 43-story, 1.96 million-square-foot building is currently 98% leased, up from 78% in 1995. Besides Equitable, tenants include Warner Communications, ABN Amro, EMI Entertainment, and Bank of New York.
Officials at GE Capital Real Estate and Victor Capital, a boutique firm that is representing Metropolis, declined to comment.
Metropolis was created in 1996 specifically to manage the Equitable Building and 237 Park Avenue, formerly owned by the bankrupt Olympia & York Cos. Apollo had taken control of these properties after purchasing commercial mortgage-backed securities issued by Olympia & York at a deep discount.
This year Metropolis agreed to sell the Park Avenue property to Max Capital Management, a firm controlled by moguls Richard Kalikow and Adam Hochfelder, for $375 million. Goldman Sachs provided a $280 million mortgage to Max Capital to finance that purchase.
Observers said that to get a construction loan for its proposed spec office building, Tishman Speyer would probably have to either put a high amount of equity into the project or put some kind of corporate guarantee on the loan. Through a spokesman, Tishman Speyer president Jerry I. Speyer said it is his policy not to discuss financing.
