Boston Properties secures $ 1 billion loan at 601 Lexington Avenue in Midtown East – Commercial Observer
Boston Properties, the largest publicly traded developer and owner of high-quality office assets in the country, incurred $ 1 billion in debt to refinance its 59-story office tower in 601 Lexington Avenue in Midtown East, according to information from Moody’s Investor Service.
Wells fargo, German bank, Morgan stanley and Citigroup tackled financing, of which $ 426.7 million is expected to be securitized in the BXP Trust 2021-601L single asset, single borrower commercial mortgage backed securities (CMBS) transaction, based on Moody’s analysis of the CMBS transaction.
The 10 year fixed rate first mortgage is guaranteed by Boston Properties and Norges Bank Investment Management‘s (NBIM) fee simple and leasehold interests in the office condominiums that make up 601 Lexington Avenue, as well as the newly renovated six-story offices and mixed-use retail atrium, according to Moody’s. NBIM bought a 45 percent stake in Boston Properties’ 601 Lexington Avenue and both 100 Federal Street and Atlantic dock in Boston in the fall of 2014 for $ 1.5 billion, forming a joint venture between the two companies.
There was approximately $ 620 million in existing mortgage debt on the property – located between 53rd and 54th Streets – which was due to mature in April 2022, Boston Properties Executive Vice-President, Chief Financial Officer and Treasurer Michael LaBelle noted in the company’s third quarter earnings call.
LaBelle added that the upcoming maturation was one of the only significant debt maturities the company was considering in the next 18 months.
It is clear that it was important for Boston Properties to cross the finish line of this refinancing in order not only to take advantage of the persistently low interest rate environment, but also to reduce its interest costs from of this year. The old debt on 601 Lexington carried an “above market” interest rate of 4.75%, LaBelle said. This new $ 1 billion financing that the company just closed carries a much more favorable rate of 2.8%, according to data from Moody’s.
“Given the increased cash flow from the building, due in part to the redevelopment we completed earlier this year, we anticipate that we will be able to increase the size of the financing and significantly reduce the rate. of interest, ”LaBelle said on the call. , adding that the company had hoped to complete the refinancing before the end of the year so that the drop in interest charges is “reproductive for our 2022 profits”.
Boston Properties just completed a four-year, $ 283 million renovation of the property’s six-story mixed-use atrium, according to Moody’s. The work led to the reconfiguration of the asset’s retail space to include more dining space, as well as the creation of a ground floor entrance and a separate lobby from 53rd Street.
Other work on the iconic building included improvements to the entrances and main lobby, as well as existing offices and retail outlets on the ground floor in the six-story atrium. The second to sixth floor office suites have been redesigned and a new office entrance has been added. NYU Langone Health subsequently leased office space in the redeveloped atrium, through Moody’s.
In September, Boston Properties opened a large new dining room at the property called The Hugues, which has 17 restaurants and occupies space on the ground floor and lower level of the asset. The food hall was created as part of the renovation and was named after the late Hugh Stubbins of the architectural firm Hugh Stubbins & Associates, who worked alongside Emery Roth and sons to design the building decades ago.
Built in 1977, the average occupancy rate of the skyscraper of about 1.8 million square feet since 2010 has hovered around 98%. It is currently 84% leased to a mix of law firms on the Am Law Global 200 list, including one of the largest firms in the country, Kirkland and Ellis, which is by far the largest legal tenant at 601 Lexington – occupying 37% of net leasable area, or over 616,000 square feet. Kirkland & Ellis, a 112-year-old law firm, expanded its presence in the building in 2017; the company accounts for more than 39% of gross rent, according to Moody’s. The other tenants include Citibank, London-based law firm Freshfields Bruckhaus Deringer and black stone.
This significant funding comes despite the struggling office market in Midtown East and throughout Manhattan, which is still reeling from the pandemic. In the third quarter, Manhattan office availability reached a record high of 18.7%, up for the fifth consecutive quarter, according to market data cited by Moody’s.
Mack Burke can be contacted at [email protected].