Paul Hastings LLP’s plan to vacate the Park Avenue Tower upon its lease expiration in June 2016 has landed the $425m COMM 2014-PAT CMBS securitization on the servicer’s watchlist, Real Estate Capital has learned.
The international law firm occupies nearly 50% of the rentable area at the Blackstone-owned Midtown Manhattan office building, which is the single asset behind the securitization.
“The performance of the CMBS deal hinges on the performance of this prominent, single asset,” said Sean Barrie, an analyst with data and research firm Trepp.
The watchlist serves as an early warning sign for potential default, keeping tabs on maturing loans that are either performing poorly, have big changes in rent roll or anticipated tenant departures.
Hastings, which occupies more than 250,000 sq ft on 16 floors, is expected to downsize when it moves into the MetLife Building at 200 Park Avenue; and hedge fund manager Davidson Kempner is also said to be vacating its 50,000 sq ft in a move to a larger space at 520 Madison Avenue.
The departures were anticipated, however, and investment giant Blackstone went into the acquisition prepared — and likely took out the floating rate loan with an eye towards releasing the space at higher rents and ultimately flipping the property, sources said.
While the loan has about one year left on its term, it carries three one-year extension options. The loan was also structured with a full cash flow sweep beginning on the closing date and a $53m guarantee from Blackstone Real Estate Partners VII for capital expenditures and potential leasing costs, according to Trepp.
But if Blackstone were to have trouble releasing the space, they would likely call upon the extension options — otherwise face refinancing risk in addition to any rent losses, Barrie added.
Blackstone bought the nearly 620,000 sq ft property from San Francisco-based Shorenstein Co. in July of 2014. Shorenstein had assumed control in 2008 for $625m, with original developer Park Tower Realty reportedly retaining a small stake for tax reasons. Blackstone briefly owned but quickly flipped the property in 2007 after its takeover of Equity Office Properties.
The main criteria that could lead a master servicer to place a loan on their watchlist, according to guidelines from the CRE Finance Council, are: property condition issues, financial conditions, borrower issues, lease rollover, tenant issues and vacancy, maturity, returned loans and other (servicer discretion).