Commercial Observer Financial Weekly - June 26, 2020

The Insider’s Weekly Guide to the Commercial Mortgage Industry The Insider’s Weekly Guide to the Commercial Finance Industry

FINANCE FINANCE WEEKLY WEEKLY

In This Issue In This Issue 2 Goldman lends $258M towards Dune’s 3 More investors sue crowdfunding firm national lodging portfolio buy Prodigy Network 4 MRC finances two Seattle properties 5 Bank Hapoalim lends $20M on with $27M loan Brooklyn condo development 6 ACORE provides $60M refi for 7 Paramount triggers UCC auction on Nashville boutique hotel Kushner’s Times Square retail condo 8 CCRE refinances pair of SoCal strip 9 Lendlease, L+M nab $250M malls with $31M loan construction loan for Upper Manhattan project 2020 coverage 10mixed-use CREFC Miami

The News Building at 220 East 42nd Street.

COURTESY NEWMARK KNIGHT FRANK COURTESY COSTAR

12 Q&A with Don Peebles, founder of The Peebles Corporation

Lending Consortium Refinances SL Green’s News Building With $510M Loan A rendering of the roof deck at 111 Wall Street.

Nightingale, Wafra Land $145M in Financing for 111 Wall Street

After having announced last October that it had sold The News Buildingin Midtown and then subsequently seeing that $815 million sale fall through, SL Green Realty Corp.announced Nightingale Properties that it has refinanced theand assetWafra with a Capital $510 milPartners have finalized their purchase of 111 Wall lion mortgage.

StreetAareal along with $145 million ofaacquisition Capital Corp. — New York-financing for the deal, sources conbased subsidiary of German financier firmed to Commercial EXCLUSIVE Aareal Bank — Citi and French lender Observer.

Credit Agricole teamed up to proThe Jan. 15. according to informavidedeal the closed debt financing, SL Green Corp. ledfirm the finanction fromRealty SL Green.

The said the liquidity ing,generated providingby a $110 million senior loan, this transaction also allowed it to while an undisclosed lender chipped in $35 mil“repay the company’s unsecured revolving credit lionfacility.” in mezzanine debt.

TheSLacquisition price Andrew couldn’tMathias immediately Green president said in be aconfirmed.

Crain’s New York Business first prepared statement that he credits the closing

of the transaction at this time as a “testament” to the firm’s track record and its history and relationship with the lending community, adding that the deal “is another example of the signifreported the acquisition hadYork closed andmarket.” that the icant liquidity in the [New City] purchase price $175 million, but sources Thewas 1-million-square-foot skyclose to the transaction disputed that amount. scraper at 220 East 42nd Street — Newmark Knight Frank’s Stolly, between Second and Dustin Third Avenues Jordan Roeschlaub, Nick Scribani, Chris — was built in 1930 and is called The Kramer, Seth Hall and Gallagher News Building due to John its history as the the debt, NKF’s Jimmy formernegotiated headquarters for while The New York Daily Kuhn, Evan Layne, Brett Siegel and Jean News, which now operates out of offices in the Celestian arranged the sale of the asset on Financial District. behalf Zurich Insurance Group.

SLof Green had announced a $815 million sale CO$715 reported in October that — per square foot — of theNightingale 37-story art and deco

The

LEAD The LEAD

NIGHTINGALE...continued on pageon2 page 3 SL GREEN...continued 4 | JANUARY 17,2020 2020 1 | JUNE 26,

Morgan Stanley Brookfield, Douglas Lends $50MSeal Development to Refi Bronx $500M Refi for DC Office Asset Multifamily Portfolio

Brookfield Properties and Douglas Development have sealed a $500 million refinance for their Class A trophy office property at 655 New York Avenue in Washington, D.C., Eastchester, N.Y.-based Finkelstein sources told Commercial Observer.

Timberger East Real Estate (FTERE) has secured A consortium of banks including Crédit a $50.4 million loan from Agricole, Standard Chartered, Helaba and Morgan Stanley to refinance EXCLUSIVE BayernLB provided the floating-rate loan, a portfolio of five rental propwhich takes out previous construction debt on erties located throughout the Bronx, Commercial the property.

Observer has learned.

The deal closed last week and the financThe 10-year, interest-only financing pays a ing was negotiated by CBRE’s James Millon, fixed interest to Morgan Stanley at a rate of 3.78 Tom Traynor and P.J. Finley. Officials at CBRE percent, sources told CO. It was arranged on declined to comment. behalf of the borrower by Black Bear Capital CO first reported the developers were in Partners (BBCP), the real estate debt and equity the market with the financing request back in advisory of Black Bear Assetwas Management.

January arm and that the transaction being heavBBCP team Bryan Manz, Rob Serra ilyAcompeted byofthe lending community.

It’sand one Emil DePasquale negotiated the refinance. of the biggest deals to close post-COVID, with for“The quality thetruly assets and strength the eign banks wellofand stepping up to theofplate. borrower enabled [us] to negotiate a favorable One source close to the deal described it fixed withexecution interest-only Manz as a rate “great thatpayments,” included equity said in a prepared statement, adding that the repatriation.” deal’s loan-to-value was “conservative.”

The 768,000-square-foot trophy office and The five properties — 2 Minerva Place; 901 retail project sits adjacent to the Washington Walton Avenue; 984 and Sheridan Convention Center spans Avenue; an entire1460 city

NIGHTINGALE...

BROOKFIELD... continued continuedon onpage page25

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More Investors Sue Crowdfunding Firm Prodigy Network A group of investors filed suit against crowdfunding firm Prodigy Network, claiming that it failed to make its payments on their investment into a hotel at 84 William Street.

This is the latest in a series of similar lawsuits from investors against the company for failing to make good on its promises. The lawsuits have been mounted since 2019, as the company—a pioneer in real estate crowdfunding—has run into financial trouble at multiple projects in New York and Chicago.

Earlier this month, Prodigy sold two of its assets in NoMad at a loss, at 331 Park Avenue Southand 114 East 25th Street, and its sister

SL GREEN ... continued from page 1 office tower to Jacob Chetrit in October last year, with an expected closing date aimed at the first quarter of this year. Chetrit eventually pulled out of the deal in March, amid the height of the COVID-19 pandemic, after its lender Deutsche Bank decided that it wouldn’t move forward in funding the transaction. Afterwards, SL Green sued Chetrit in an attempt to retain the $35 million contract deposit he had made, according to a March report from Connect New York.

company The Assemblage, a coworking firm housed in those NoMad properties, ceased operations, Commercial Observer reported.

In February, Prodigy reached out to investors to request an additional $40 million in contributions in order to salvage the project at 84 William Street, The Real Deal reported at the time.

In this latest suit, filed in state court Monday, the plaintiffs invested between $150,000 and $1.5 million into the William Street project, which Prodigy intended to upgrade to a luxury extended-stay hotel, per the complaint. The investments were made either in the form of common stock, or as a loan, and came with a

Nevertheless, the building remains in a strong position and is nearly fully leased out to around 60 tenants, as per data from CoStar Group. And this month, SL Green was able to sell two commercial condominiums for $26.7 million to the Young Adult Institute, The Real Deal reported.

Current tenants include local TV stationWPIX, the United Nations, Visiting Nurse Service of New York, which has leased more than 308,000 square feet, and Omnicom Group, which is currently housed in around 231,000 square feet, as per data from CoStar.

3 | JUNE 26, 2020

redemption option.

In June 2019, Prodigy informed its investors, across multiple projects, that it was running short on funds, and in September it stopped providing updates on the projects, per the complaint.

Each of the plaintiffs attempted to redeem their shares between June 2019 and May of this year, but did not receive any payouts. They’re claiming at least $3.6 million in damages.

Prodigy’s founder, Rodrigo Nino, who had stepped down as CEO of Prodigy in 2019 amid the allegations, succumbed to cancer and died in May.—Chava Gourarie

SL Green bought the asset for $265 million in Feb. 2003, almost two years after it had made a $53.5 million preferred equity investment in the fall 2001.

Two of the three banks in the deal are foreign, a trend also seen in Brookfield Properties and Douglas Development’s $500 million refinance of 655 New York Avenue in Washington, D.C. last week, as CO previously reported. In that deal, the entire lending consortium consisted of foreign financiers.

—Mack Burke, with additional reporting by Cathy Cunningham.

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CIT Bankhas provided $35.9 million to a joint venture between Fields Grade Developmentand Alpine Residentialto finance the construction of an apartment building on Canal Street in the Harbor Point area south of downtown Stamford, the bank announced yesterday.

The senior secured construction loan will help facilitate the joint venture’s construction of a 183unit building that’s just a few blocks away from Stamford’s Metro North railway station.

Rob Caulfield, one of two brothers, alongside James Caulfield, that heads up Hoboken, N.J.based developer Fields, said in a prepared statement that the building will have ground-floor retail space and a range of amenities, adding that CIT was able to develop “the right financing package while overcoming the challenges of doing business during the COVID-19 pandemic.”

“This project is a great fit for our portfolio of projects in major metropolitan areas,” Chris Niederpruem, a managing director and the group head for CIT’s real estate finance division, said in prepared remarks, adding that his group is was happy to establish a relationship with the joint venture, who, he said, are “confident will be an attractive residential property for the long term.”—M.B.

Brooklyn Bridge.

Bank Hapoalim Lends $20M on Brooklyn Condo Development

BROOKFIELD ...continued from page 1 block in the Mount Vernon Triangle neighborhood of downtown Washington. The mega-complex comprises 19 existing historic buildings—erected in the early 1900s and acquired between 2001 and 2013—with a new, 11-story glass office building, and 80,000 square feet of space dedicated to food and retail.

Douglas Development bought the first of the historic building in 2001, eventually spending $72 million to acquire all 19 buildings, according to the Washington Business Journal.

The project’s architect, Shalom Baranes

Bank Hapoalim has provided a $19.6 million loan for the ground-up construction of a boutique luxury condominium building on the border of Brooklyn’s Gowanus and Boerum Hill neighborhoods, Commercial Observer has learned.

Meridian Capital Group’s Adam Hakimand James Murad negotiated the 30-month debt on behalf of Tankhouse’s Sam Alison-Mayne and Sebastian Mendez.

The five-story property, at 450 Warren Street between Bond and Nevins Street,will include 18 residences — each with private outdoor space — as well as 4,015 square feet of commercial space.

The boutique condo development will be the first of its kind following Gowanus’ rezoning.

Associates, incorporated design elements from the original properties in the project, including terracotta panels to help it blend into neighboring buildings.

Currently 92 percent leased to investment-grade tenants, the development is anchored by healthcare and education consulting company The Advisory Board Co., and includes a tenant-only two-floor gym and two private terraces for tenants leasing space on the upper floors.

In December 2019, Pricewaterhouse Coopers signed a 15-year, 182,316-square-foot lease at the property, as previously reported by CO. PwC plans to move into its new space in the

5 | JUNE 26, 2020

Dumbo, Brooklyn-based Tankhouse filed permits for the five-story building in July 2019.

“Tankhouse has identified an ideal site that benefits from the beautiful residential streetscape of Boerum Hill combined with the exciting explosion of growth coming from Gowanus,” Hakim said. “Additionally, Bank Hapoalim did a fantastic job of working through this closing in an uncertain time and providing the borrower with the funding needed to see construction of this project through to fruition.”

Last month, the same Meridian team arranged $29 million in construction debt for a new mixeduse development in Queens. Bank OZK was the lender in that instance.—C.C.

Rendering of 655 New York Avenue.

spring of 2021, consolidating two of its offices in the area. Additional tenants include The Capital Burger, Compass Coffee and Jeremiah Langhorne Restaurant.—Cathy Cunningham

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CIT Provides $36M in Construction Debt on Stamford Rental Building

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The massive retail condominium owned by Kushner Companiesat 229 West 43rd Street in Midtown Manhattan is headed for a Uniform Commercial Code (UCC) foreclosure auction scheduled for June 30, according to an auction notice from JLL, which is marketing the sale.

The auction— which fast-tracks the foreclosure timeline — is being pursued by one of the property’s mezzanine lenders, Paramount Group, under the entity 229 WEST FUND VIII LP. Paramount had provided a $70 million mezzanine loan as part of larger refinancing in 2016.

The 251,000-square-foot asset will be sold at a “as is, where is” basis — all cash — at a password-protected virtual Zoom UCC auction that had previously been postponed and was originally scheduled for April 30, according to the listing, which was published by Commercial Mortgage Alert.

A representative for Kushner Companies was not immediately available to answer a request for comment. Officials at Paramount declined to comment.

Kushner made a splash with its $296 million purchase of the condo in the fall 2015, receiving a $470 million appraisal not long after closing the acquisition and then subsequently locking in a $370 million debt package a year later to refinance the asset (Kushner bought it from Africa Israel USA, a U.S. subsidiary of Israeli investment firm Africa Israel Investments, at a 7.53 percent cap rate, according to data from CoStar Group.)

That package included a $285 million commercial mortgage-backed securities (CMBS) loan from Deutsche Bank as well as Paramount’s $70 million mezzanine loan and a separate $15 million mezz loan from SL Green Realty Corp., as CO previously reported.

A representative for SL Green did not respond to an inquiry.

In the middle of an unpredictable and volatile retail market last year that spilled into the early part of this year, that $285 million CMBS loan was sent to its special servicer KeyBank last December due to income struggles caused by tenancy financial troubles. Its transfer came after Kushner failed to fund “a shortfall on the loan’s debt service payments and required reserves,” according to a previous statement from Kroll Bond Rating Agency (KBRA) that was reported

by CO. The loan itself — which had been previously watchlisted in Sept. 2017 — is split among four CMBS conduit transactions, including the JPMDB 2017-C5, the CD 2016-CD2, the CD 2017-CD3and the CGCMT 2017-P7. At the time of the transfer, Kushner had also defaulted on the building’s junior mezzanine debt and was in negotiations with that lender, according to KBRA.

229 West 43rd Street.

Not long after Kushner’s purchase, tenancy issues began to set in, muddying its cash flow outlook. In the first two years, the landlord had unfruitful experiences with two different celebrity chefs. Guy Fieri’s Guy’s American Kitchen closed in 2017 after a 5-year-long stint at the location. And the landlord had also gotten embroiled in a lawsuit in early 2018 over leased space and rent payments with chef Todd English’s operating company Outstanding Hospitality Management. English had been selected to oversee a food hall there that never came to fruition.

These misses, coupled with eventual troubles with two of its largest tenants — experiential attractions in Gulliver’s Gate and National Geographic’s Ocean Odyssey— culminated in the special servicing transfer of the $285 million senior mortgage earlier this year.

Gulliver’s Gate, an exhibition space showcasing miniature sites of global attractions and famous pieces of real estate, filed for bankruptcy last October to overhaul its debt and possibly stave off an eviction at the site, per court filings reported at the time by Debtwire. In December, it was reported that Kushner, eager to take back the occupied space, which spans nearly 46,000 square feet, sought permission from a bankruptcy judge to reignite the eviction process, citing significant back rent owed by Gulliver’s.

Prior to this dispute, in Dec. 2018, it had agreed 7 | JUNE 26, 2020

to a reduced rent to ensure Gulliver would remain operational at the location through March 2024, but according to court filings and Debtwire’s reporting, Gulliver breached that agreement with continued missed monthly payments. In January, CO reported that Gulliver’s was still not paying rent, according to information from KBRA. CoStar has pegged Gulliver’s lease expiration at January 2031.

National Geographic operated a sea life exhibit at the site called Ocean Odyssey, which had defaulted on its lease and eventually came to an agreement with Kushner in the spring last year for reduced monthly payments — as of January, National Geographic was still struggling under that rate, according to servicer watchlist commentary.

Even so, as of last December, Kushner was able to stay above water with its senior debt service payments. Three days after the company fell $28,000 short on a $1.3 million payment to senior bondholders on Dec. 6, it came through with the money to cover, according to the servicer’s watchlist notes from December previously reported by CO. The property’s remaining “performing” tenants include bowling alley Bowlmor— just over 31 percent of its rentable area — Guitar Center, which has leased about 11.3 percent of the space at the basement level, bar and restaurant The Ribbon, Haru Sushi and Los Tacos.—M.B.

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A rendering of 100 Claremont Avenue in Morningside Heights.

Lendlease, L+M Nab $250M Loan From Barings for Morningside Heights Mixed-Use Project A joint venture between multinational construction firm Lendleaseand developer L+M Development Partners have nabbed $250 million in construction financing from Barings to fund their planned mixed-use project at the site of the Union Theological Seminary in Manhattan’s Morningside Heights neighborhood, according to an announcement today from the joint venture.

Lendlease and L+M’s fresh construction debt proceeds will help facilitate the pair’s planned 354,000-square-foot mixed-use academic and residential project at 100 Claremont Avenue, feeding off Columbia University’s massive campus in the area. The joint venture is aiming at completing the development by the spring of 2023.

JLL’s Christopher Peck and Scott Aiese sourced and arranged the construction financing on behalf of the borrowers.

The development will essentially meld with the seminary, a non-denominational Christian seminary associated with Columbia University that has served its theology faculty since 1928.

The project will feature 54,000 square feet of space for classrooms and offices for academic and administrative uses as well as apartments for faculty. In addition to that, a 42-story tower comprising 165 market-rate, one-, two-, three- and

four-bedroom condominium residences is planned for the site, according to information from the joint venture. Lendlease first filed plans for the project in Dec. 2018 and demolition began last October.

“The commitment and fortitude of our financial, academic and neighborhood partnerships have enabled us to move forward with the financing and construction of this unique project, despite the many uncertainties stemming from COVID-19,” Lendlease executive general manager Melissa Román Burchsaid in prepared remarks.

She added that the loan gives them a financial partner dedicated to the plan of delivering “much needed classrooms and housing for both the academic community and the broader Morningside Heights neighborhood, while also continuing our investment in the local community.”

Barings managing director and head of construction lending, Justin Preftakes, said his firm is eager to see out the “exciting project” — designed by Robert A.M. Stern Architects— given that it’s being led by two renown developers.

In 2018, Lendlease and L+M bought air rights from the seminary, which will eventually take up the office, classroom and faculty housing space, according to a 2018 report from The Real Deal. The new development is an extension 9 | JUNE 26, 2020

of previous renovation efforts by the seminary, which had been trying to raise money at that time to do so, engaging in a $46.5 million sale-leaseback transaction of one of its dorms at 97-101 Claremont Avenue in Oct. 2018 in a move to capture some liquidity. Over the past year, Union, itself, has been engaged in a “phased work to comply with the City of New York’s Local Law 11 that calls for the restoration and safety of the historic campus building facades,” according to its website.

As part of their development efforts, Lendlease and L+M have also set aside $5 million to invest in the surrounding Morningside Heights area.

The partnership is planning to provide $1.1 million over the next five years to support local community groups. The money will go towards a new fund called the Morningside Heights Community Fund— a partnership between the Morningside Height Community Coalition and the New York Community Trust to “identify and award grants to initiatives that make positive impacts” on the neighborhood, according to its website. The remaining $3.9 million will be doled out once the project is completed, and will “enable social justice programming to develop the next generation of community leaders,” according to information from the borrowers.—M.B.

The Takeaway Construction Delinquencies Increase for Third Straight Quarter, Now at Highest Level Since the Great Recession “Trepp released its quarterly report of bank portfolio loan performance in commercial real estate, multifamily, and construction. The first quarter 2020 results show that construction delinquencies have increased for the third consecutive quarter and are now at the highest level seen since the recession,” wrote Catherine Liu, an analyst at Trepp. “The Trepp bank loan performance benchmark report is derived from the Trepp Anonymized Loan Level Repository (T-ALLR) and provides current and historical quarterly loan level attributes and performance data, including delinquency rates and chargeoffs, on loans with current outstanding balances of $177 billion.

“Despite the economic disruptions and interest rate volatility in the latter part of the quarter, new originations in Q1 were relatively strong totaling $11.7 billion, down from $15.1 billion in Q4. Many of the new originations were already in the pipeline when the pandemic began limiting the size of the origination drop off.

“Delinquency rates for construction loans increased for the third consecutive quarter and now stand 1.07%, up from 0.74% in the previous quarter and the highest rate since mid-2013

when delinquency rates were still coming down post-recession.Multifamily construction loans, which represent 40% of construction loans based on outstanding balance, had an overall delinquency rate of 1.08% at quarter end while construction loans for hotels stood at 2.99% and represented 5% of current loan balances.

2020 EVENTS

“Delinquency rates for CRE and multifamily loans remain near historic lows. The impact of the pandemic on delinquency rates for Q1 is also likely muted, given the timing of the economic disruption, indicating possible broader issues in construction lending.”

Source:

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Q+A

‘

Don Peebles

FINANCE WEEKLY

Founder of The Peebles Corporation

Can you talk about the platform’s investor base?

It includes global and national banks, public pension systems and global investment banking firms. We are approaching some university endowments as well. The size of this fund is $500 million, which is a lot of money, but we’ve had projects that are that amount or larger and raising this fund has been much more difficult than financing one of those projects. So even though the risk is broadly diversified as opposed to concentrated in one project, and [it’s] in markets that everyone knows and the statistics show have been severely underserved, it has still been

1 Whitehall Street, New York, NY 10004 212.755.2400

Cathy Cunningham Deputy Editor, Finance

Mack Burke

Finance Reporter

Robyn Reiss

Don Peebles.

COURTESY MARY BETH KOETH FOR COMMERCIAL OBSERVER

Commercial Observer: Tell us about the $500 million investment platform you launched, geared towards minority and women developers.

Don Peebles: About a year ago, we were approached by the state of California to consider doing an emerging developers fund. I wish I’d thought of it myself. But we were approached by the incoming Treasurer [and her team] at that time. We met with her and then began to do research. As a developer myself, a minority developer, I understood that access to capital was very challenging. My mother was also in the real estate business and I saw her challenges. For 36 years, every development project that we’ve ever [had] has utilized our [own] capital for pre-development, aside from our first project. So I know that one of the biggest challenges women and minorities face when trying to compete in our industry is access to capital, and that’s why you see so few women and minority developers. I thought it was a good idea to solve that and figure out how to scale it up. After doing our research and putting together a business plan and structure, we decided to pursue a fund that would focused on the eight markets that are company is active in and structure it more like a venture capital fund, where we are investing and helping the developers building infrastructure and utilize our platform and our relationships to help them grow their businesses more effectively.

And that was before this social protesting on racial disparity. What the current circumstances have proven to us is that this is a serious issue that is affecting the nation and needs to be addressed. We hope to lead in that space to provide access to capital to talented entrepreneurs, because after all, talent is dispersed equally, it’s just that opportunity and economic opportunity [aren’t].

a challenge raising this capital, which [points to] the challenges that minority and women entrepreneurs confront. And while the industry and our capitalistic system says and promises women and minorities that this is a fair and equitable system; it really isn’t. As a result of these protest[s], we’ve now been reengaged by several investors who actually said ‘no,’ who now want to consider making investments. I think it’s a good environment for this.

It’s no secret that real estate is an overwhelmingly white, male industry. How can we improve and promote diversity as an industry?

Well, I think the industry as a whole ought to think about survival. I remember when I first started doing business in New York in 2011, I was on the board of governors for REBNY in 2012 for a year or two and I remember telling the former CEO of REBNY and some of the board members that the business model that they had was not sustainable. What I meant by that is that New York City is a city comprising a population that’s 53 percent female and 67 percent minority. That group of people is not going to sit by idly and just never get a fair shake at opportunities; you’re not going to be able to keep this concentration of opportunity.

11 | JUNE 26, 2020

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