Financing One World Trade Center

The owner of America’s tallest building will sell it ‘when the time is right,’ and potential buyers will need some help

With news that One World Trade Center (1 WTC) in downtown Manhattan may be up for sale comes a financing opportunity of massive proportions.

The tower’s principal owner and developer, the Port Authority of New York & New Jersey, is reportedly looking to fetch as much as $5 billion for the property — which would be the largest price ever paid for a US office building.

Any financing package on the purchase of the gleaming silver tower, completed in 2013 and shooting a symbolic 1,776 feet, is bound to be as proportionately large as its whopping sticker price. To put it simply, a modest 50 percent loan-to-value (LTV) would require $2.5 billion in loans, which is almost unheard of for a single asset.

The closest thing in recent memory is the $2.7 billion loan that Blackstone secured late last year on the massive Stuyvesant Town and Peter Cooper Village apartment complex in Manhattan. 

Real Capital Analytics (RCA) provided me with data showing the largest first mortgage loans in the US over the last five years. The next largest after Stuy-Town was the $1.5 billion loan that Bank of China provided last year on Related Companies’ Hudson Yards project in Manhattan, and the largest office building loan was a $1.45 billion CMBS loan that SL Green used to purchase 388-390 Greenwich Street in downtown Manhattan in 2014.

To see what financing options might be viable at 1 WTC, I spoke with Jack Gay, head of Commercial Real Estate Debt at TIAA Global Asset Management, who oversees a $21 billion global CRE debt portfolio.

Gay, who noted that he has no intimate knowledge of the building’s financials, said the choice between two likely scenarios would largely rely on whether the loan is made prior to or after the full lease-up of the building, as it is currently about 70 percent leased.

If secured prior to the lease-up, the most likely scenario would involve a syndicate of several large banks, which typically club together on short term, floating rate financing. Such financings usually float on the Libor rate and have a two-year duration with three one-year extension options, after which longer term financing may be sought.

Following the full lease-up of the tower, a longer term option would likely include a CMBS loan as the primary financing, backed by subordinate debt from a potential range of private lenders. Such loans are usually 7-10 years in duration and have traditionally been sought on large office purchases.  

The loan-to-value on the deal would not likely stretch far above 50 percent, both because of the limits institutional buyers impose on their portfolios — Gay says a typical portfolio-wide LTV target for core assets is around 30 percent — and also because there are considerable risks involved with the asset.

One is the lease-up issue; the other major risk, given the fate of the Twin Towers, is the continued, perceived threat of terrorism at the rebuilt Trade Center complex. On the other hand, positive considerations lenders should take into account would include a likely “tremendous equity cushion” from a large institutional sponsor, and having a stake in a world renown core asset.

“Every lender would have to weigh that risk-return benefit,” Gay said.

The Port Authority has stated its intention to get out of real estate and focus on its “core transportation mission,” as evidenced by the previous sale of the World Trade Center retail project to Westfield for $1.4 billion. A spokesperson for the Port Authority told me that 1 WTC is not currently for sale but that a potential sale may come “when the time is right.”

The Durst Organization, which manages and leases the property, also retains a $100 million stake in the building, and could block a sale to other groups. A Durst spokesperson told me it was “premature to even speculate” on whether the organization would allow a sale or perhaps try to buy the tower.   

In the meantime, potential buyers and lenders should quietly gauge their options, awaiting word from the Port Authority as to when ‘the time is right.’