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The high volume of commercial mortgages maturing this year has left some property owners scrambling for funds to refinance. Not so for these eight landlords, who took advantage of the strong price appreciation of their iconic office buildings, luxury hotels, super regional shopping malls, and a portfolio of rental homes, to cash out in some cases, to the tune of hundreds of millions of dollars of equity. Bank commercial real estate lenders, who know all too well the cyclical nature of this sector, will want to take a close look at these transactions, details courtesy of our colleagues at Asset Securitization Report.
9 West 57th Street in New York (left), also known as the Solow Building, is located just west of Fifth Avenue and features 50 stories with 1.5 million square feet of office space and about 72,000 square feet of retail space. In September, owner Sheldon H. Solow obtained a $1.2 billion mortgage that refinanced a loan obtained just four years earlier, cashing out $485 million of equity in the process.
Waldorf Astoria Boca Raton
Hotels are proving to be some of the most difficult commercial mortgages to refinance as prices level off and lenders tighten underwriting criteria. Extremely short-term leases and constantly changing room prices make cash flow hard to predict. Yet in July, the Blackstone Group obtained $715 million in loans on the 1,047-room Waldorf Astoria Boca Raton Resort & Club, paying off debt it had taken out in 2013. It also cashed out $136.5 million of equity that it had built up over the previous three years.
Extended-Stay Hotel Portfolio
Owners of some more down-market hotels are also getting a welcome reception from lenders that originate loans for securitization. In September, WoodSpring Hotels, owned by LG VP Holdings, founder Jack DeBoer and other investors obtained a $235 million first mortgage and $40 million second mortgage on a portfolio of 63 extended-stay hotels that put $68.8 million of cash in owners' pockets.
Merchandise Mart, Chicago
This 24-story, 4 million-square-foot building located at the junction of the Chicago River's branches was the largest in the world when it was built in 1920. Built by Marshall C. Fields and owned for over half a century by the Kennedy family, it is a leading destination for retailers and wholesalers. The owner, Vornado Realty Trust, acquired the property for $369.1 million in 1989. Over the past five years, as demand for showroom space subsided, it made $188 million in capital and tenant improvements, transforming much of the building into office space. In September, the sponsor refinanced the property, obtaining a $550 million mortgage that allowed it to cash out $100 million, recouping some of its investment. A further $43 million in capital improvements are planned or in progress for 2016.
Super-Regional Mall in Ohio
There are trophy properties in the heartlands, as well as in major metropolitan areas. In July, the global retailer Brands and certain principals of property developer The Georgetown Co. obtained a $700 million whole loan on 1.3 million square feet of Easton Town Center, a super-regional mall in Columbus, Ohio. Proceeds were used to refinance a mortgage obtained by the owners in 2007 and return $262.9 million in equity. It wasn't all easy money. Kroll Bond Rating Agency, which rated a securitization of the loan, noted that the owners had spent more than $80 million on property improvements and upgrades since 2010.
Single-Family Rental Portfolio
During the housing crisis, private-equity-backed firms scooped up thousands of homes at deep discounts, turning them into rental properties. These portfolios were financed by large commercial mortgages that were used to back mortgage bonds. One of the players, Progress Residential, refinanced its first deal in July. It obtained a $657.3 million loan secured by 4,068 homes, the bulk of which (70.2%) were previously securitized in a 2014 transaction. The refinancing allowed Progress, founded by former Goldman Sachs partner Donald Mullen Jr. (shown here at a 2011 benefit in New York), to cash out additional equity. The 2,762 homes that were initially securitized in the 2014 transaction had an aggregate value, as measured by broker price opinions, of $549 million; in June, Progress obtained updated third-party broker price opinions on the rollover properties, which, in total, had increased in value by $58.5 million, or 10.6%, to $607.5 million.
A $310 million commercial mortgage on Penn Square Mall, a 1.06 million-square-foot super-regional shopping mall in Oklahoma City, is further evidence that Simon Property Group has no problem accessing the commercial mortgage bond market. Simon obtained the loan in January, using it to refinance $93.2 million of existing debt; the remaining proceeds of about $215.7 million (69.6% of the loan balance) were cashed out. It probably wasn't a tough sell: the mall's overall occupancy rate was approximately 99% as of December 2015 and has averaged 99% for the past 10 years. And there's still a big cushion of equity; even after the cash-out refi, Simon still has roughly $350 million of equity in the property, which it has owned since 2002, according to Standard & Poor's.
There is some risk, however: S&P said that leases making up 77.4% of the gross leasable area expire before the loan is repaid, and leases accounting for 32.3% of gross leasable area expiring in 2017.
Big Hotel Franchises
In March, Ashford Hospitality Trust took out a $325 million first mortgage and $87.5 million second mortgage on a portfolio of 17 hotel properties in seven states, all affiliated with national recognized franchises. The new loans were used to pay off the prior $268.4 million mortgage and return $99.5 million to the borrower. Ashford had made some $101 million in capital improvements on the properties since 2011, according to Standard & Poor's.