A few weeks after renewing a huge lease with the insurance company New York Life at 63 Madison Avenue, the building’s landlord, George Comfort & Sons, is close to securing a new mortgage for the property with Bank of China sources say.
The building had been placed on a watch list in recent weeks by the data-tracking firm Trepp LLC, which noted that the property appeared to be generating enough cash flow to service its existing $165 million loan but that the debt had matured in January.
Without new financing to immediately take the place of its expiring loan, 63 Madison Avenue essentially lapsed into default sources said.
A person with knowledge of the situation said that George Comfort & Sons was eager to push off refinancing the property, even if that meant defaulting, until it could complete the renewal deal with New York Life, which occupies about half of the building’s roughly 800,000 square feet.
Securing 63 Madison’s largest tenant was essential to swapping out its debt sources said. If George Comfort had, for instance, tried to arrange a new mortgage last year when there was still no guarantee New York Life would stay, it would have been able to receive financing on far less attractive terms, if at all, these people say.
That’s because large blocks of empty space have become hard to fill due to a slowdown in the city’s leasing market. Few lenders are willing to extend money to buildings facing uncertain circumstances, either in the form of present vacancies or impending exposure to tenant rollover.
In 2005, George Comfort took a $165 million mortgage against 63 Madison with German American Capital Corporation, a subsidiary of Deutsche Bank that subsequently sold the debt off as mortgage backed securities.
Since at least September last year, George Comfort had been in talks with a special servicer for the property, an administrative agent that negotiates with the borrower on behalf of the holders of the mortgage backed securities when a loan is either distressed or appears to be on track towards default.
According to Trepp, the servicer noted then that George Comfort had issued a warning that it would not be able to find new financing before the loan’s maturity date in January and had requested an extension, noting it was in talks to renew New York Life.
The New York Life deal took months, according to commercial leasing brokers, because the large tenant had trolled the market for inexpensive alternatives to 63 Madison before finally deciding in recent weeks to remain put.
The terms of George Comfort’s loan with Bank of China were not available. Information provided by Trepp said that the building’s cash flow is more than one and a half times its debt service, what is considered by experts to be a healthy profit margin that some sources said may allow George Comfort to receive a similarly sized loan from the Chinese bank.
One of the large issues that property owners with expiring mortgages are facing is that, because property values have fallen, existing loans have been impossible to substitute with new debt of equal size, requiring new cash either out of pocket or from an equity partner.