Two of the city’s largest office landlords bought themselves more time to pay off the mammoth loan backed by 280 Park Avenue – but at a cost.
SL Green Realty and Vornado Realty ginned up $100 million to stretch the maturity date for the Midtown East building’s $1.1 billion in debt by two years, according to Morningstar Credit.
The commitment covered “present and expected shortfalls,” Morningstar commentary details.
A source familiar with the modification said the firms committed about $60 million, and the extra cash went to leasing costs, not to paying down the loan.
The landlords also bought the $125 million mezzanine loan tied to the block-long behemoth for about $63 million, the Commercial Observer reported.
A spokesperson for Vornado declined to comment; SL Green did not comment.
The sponsors took out the floating-rate mortgage in 2017, locking down a 2019 maturity that allowed for five one-year extensions. The fully extended maturity date was September 2024.
In December, the debt transferred to special servicing, as Vornado and SL Green worked to flesh out a modification that would win them a few more years until the debt came due, according to Morningstar.
The source with knowledge of the extension said the loan went to special servicing to document the modification.
The property, built in the 1960s and last renovated in 2015, held on to a healthy occupancy rate through the pandemic, even as other properties struggled to retain tenants and sufficient cash flow.
When the 280 Park’s loan landed in special servicing at year’s end, the asset was 93 percent occupied.
Rather, the firms’ struggles lay on the debt side, loan data signals.
As interest rates rose in 2022, pricier loan payments chipped away at cash flow. While at the end of 2021, revenues covered four times the debt service, a year later, coverage had dropped to two times. By December 2023, SL Green and Vornado were flirting with break even.
The modified interest rate for the 280 Park debt is 1.76 percent over SOFR, CO reported. SOFR stood at 5.3 percent as of April 17. It’s unclear if the new rate is fixed or floating, but the tweak will likely offer some relief.
The loan’s original interest rate was about 5 percent and the federal funds rate has risen about 5 percentage points since the team locked down the debt.
The building’s leasing demand, meanwhile, remains strong.
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The largest tenant at 280 Park, investment bank PJT Partner, recently renewed and nearly doubled its office space at the property to 270,000 square feet. Its lease term runs 15 years.
Private equity firm Antares Capital also re-upped on nearly 60,000 square feet of office space and tacked on another 19,000 for a 10-year term, the source familiar said.
The firms have the option to bump out the loan’s September 2026 maturity date two more times; though, each extension would require an additional $25 million commitment.