SL Green Realty's One Vanderbilt, the trophy tower that's redefined Manhattan’s midtown skyline since it opened in September 2020, had its $1.75 billion construction loan refinanced with a $3 billion, 10-year, fixed-rate borrowing from a group of financial institutions led by Wells Fargo and Goldman Sachs. The loan was billed as the largest fixed-rate commercial mortgage-backed securities financing secured by a single asset.
Why it matters: The $3 billion loan, with a 2.855% coupon rate, not only represents the largest single-building securitization completed, it also showcases the appeal of the 1,401-foot-tall tower — owned in a joint venture between SL Green, the National Pension Service of Korea and Hines — as a benchmark for top-tier U.S. office towers. One Vanderbilt is a big bet that office workspaces will remain relevant even as New York’s market struggles to recover from the remote working trend and other economic damages of the pandemic.
The ensuing so-called flight-to-quality trend involves tenants and investors seeking new or renovated properties that are near public transit and have coveted amenities that employers see as crucial in helping them attract and keep talent, spurring workers’ return to the office. One Vanderbilt, for instance, connects directly underground to the Grand Central Terminal transit hub and counts among its amenities the 11,000-square-foot upscale restaurant Le Pavillon by famed chef Daniel Boulud.
Come in, take a look: When SL Green started the refinancing process “in earnest” in early 2021, it was targeting about half of the $3 billion loan to be issued the top investment-grade AAA rating by credit rating firms because that would translate to lower borrowing costs, Robert Schiffer, an executive vice president of development at SL Green, said in an interview. But how would it go about showcasing the attractiveness of the property and answering the rating firms' questions on the return-to-office pace and the impact of the pandemic?
SL Green CEO Marc Holliday came up with the idea of inviting the rating firms to the building for a tour and a presentation at the 145-seat auditorium on its tenant-exclusive Vandy Club amenities floor in March 2021, when COVID-19 still stopped many in-person meetings.
“We got a great turnout,” Schiffer told CoStar, adding some 100 showed up from various rating firms and leading banks. We showed “how different One Vanderbilt is. Since the start of the pandemic to March 2021, in one year, we had signed 500,000 square feet of leases. ... If there were concerns about the future of office, it wasn’t a concern about One Vanderbilt. It points to the strength of One Vanderbilt. They walked away very impressed.”
Positive reaction: Credit rating firm DBRS Morningstar, for instance, said in June that One Vanderbilt “benefits from a large proportion of long-term, institutional-grade tenancy and nearly zero lease rollover through the scheduled loan maturity.”
“The collateral’s clearly superior asset quality and market location are projected to fuel a new ceiling for midtown Manhattan office rents, a trend clearly supported by the collateral’s active lease-up during the height of the ongoing coronavirus pandemic,” DBRS said.
In the end, SL Green got just over half of the $3 billion loan rated AAA.
The average lease term at the building at the time of the financing was 17 years, Schiffer said. Building tenants include TD Bank and TD Securities, and private equity firm The Carlyle Group.
Tenants abuzz: One Vanderbilt’s leasing momentum has continued. SL Green recently reported the tower is now 96.4% occupied. As security firm Kastle Systems’ latest keycard-swipe data showed just over a third of New Yorkers have returned to the office, Schiffer said each of the building’s tenants is “back in some form,” including those that may have adopted hybrid schedules of employees working some days of the week in the office.
“On a warm, sunny day, the Vandy Club and the [building’s public] plaza will be packed,” he said, adding Le Pavillon is booked full every single night, while the tower’s new Summit observatory has “performed beyond expectation.”
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