J.P. Morgan Chase Commercial Mortgage Securities Trust has filed a prospectus related to JPMBB 2014-C23, a $1.4 billion CMBS conduit transaction collateralized by 65 fixed rate commercial mortgage loans that are secured by 101 properties.
The largest loan in the pool is the $105 million loan on 17 State Street, a 560,210 sf, 42-story, Class-A office building in downtown Manhattan.
The 17 State Street loan is secured by a first mortgage lien on the office building. The whole loan has an outstanding principal balance of $180.0 million, which is comprised of two pari passu notes, Note A-1 and Note A-2. Note A-1 has an outstanding principal balance as of the Cut-off Date of $105 million and is being contributed to the JPMBB 2014-C23 Trust. Note A-2, with an outstanding principal balance as of the Cut-off Date of $75 million, is currently held by JPMCB and is expected to be contributed to a future securitized trust.
The loan has a 10-year term and is interest-only for the term of the loan.
The borrowing entity for the 17 State Street Whole Loan is 17 State Owner LLC. The loan sponsors and nonrecourse carve-out guarantors are Aby Rosen and Michael Fuchs, co-founders and principals of RFR Holding LLC, a Manhattan-based, privately controlled real estate investment, development and management company founded in 1991.
The sponsors purchased the property in 1999 for $118.3 million.
RFR owns a portfolio of commercial and residential real estate, including New York City office towers, luxury condominiums, hotels and retail developments such as Lever House (390 Park Avenue), Seagram Building (375 Park Avenue) and 530 Park Avenue.
Located on the northeast corner of Pearl Street opposite Battery Park in the Financial East submarket of downtown Manhattan, the 42-story 17 State St property was constructed in 1988, has column-free floor plates of approximately 14,000 square feet and floor-to-ceiling windows. The property is located a few blocks from the New York Stock Exchange and is in close proximity to several subway lines including the 1, 2, 3, 5, J, Z and R lines.
As of June 19, 2014, the property was 90.7% leased by 54 tenants.
The largest tenant at the property, Fidessa Group, leases approximately 14.8% of the net rentable area through November 2017 with one, five-year extension option remaining. Fidessa Group has been a tenant at the property since 1998, when it originally occupied approximately 13,300 square feet, and has subsequently expanded multiple times to its current 82,973 square feet. Fidessa Group provides trading, market data, order management and execution capabilities to global equity brokers. Fidessa Group is headquartered in London.
The second largest tenant, Speechworks, leases approximately 6.1% of the net rentable area through February 2016. Speechworks subleases all of its space to IP Soft through its lease expiration date. In addition to the 34,249 square feet subleased from Speechworks, IP Soft has a direct lease for an additional 27,895 square feet through February 2016. Including the subleased space, IP Soft leases 62,144 square feet, or 11.1% of the net rentable area.
IP Soft originally started leasing a portion of the Speechworks space in 2003 and in 2004 and 2006 expanded to take over additional Speechworks space. IP Soft has one, five-year extension option remaining that covers both its direct lease and the subleased space.
IP Soft is a technology consulting firm focused on the elimination of manual processes through automation technologies. IP Soft has 13 offices on four continents with its New York office at 17 State Street serving as its corporate headquarters.
The third largest tenant, Nelson, Levine, De Luca & Hamilton, LLC, leases approximately 5.2% of the net rentable area through September 2024. Nelson Levine is a law firm focused solely on the business of insurance.
According to the appraisal, despite the increase in supply coming to the market, downtown Manhattan has benefited from the conversion of office space to residential units. This resulted in an increased residential population, which is, in turn, driving demand for new restaurants, shops and additional retail development. In addition to the residential development, downtown office space continues to be priced lower than the Midtown market where average asking rents are $69.52 per square foot compared to downtown office space of $48.26 per square foot.
Due to damage caused by Hurricane Sandy in October 2012, the property was closed for repairs for approximately two weeks. The total losses as a result of Hurricane Sandy were approximately $14.0 million, which consisted primarily of repair costs for electrical work, elevators, clean up, fire alarm systems and domestic water service.
In addition to the property’s all risk insurance policy, 17 State Street has flood insurance for $10.5 million which includes $500,000 from the National Flood Insurance Program and $10.0 million of excess coverage, including business interruption coverage.
According to the appraisal, the Downtown office market totals approximately 72.8 million square feet with an overall vacancy rate of 12.2% and average rents of $48.26 per square foot as of the fourth quarter of 2013. The Financial East submarket totals approximately 35.9 million square feet and reported an overall vacancy rate of 10.5% with average Class A rents of $43.88 per square foot. The average rents at the property are approximately $51.98 per square foot which the appraisal concluded as below market.
The appraisal concluded market rents of $52.00 per square foot for floors 2-12, $56.00 per square foot for floors 14-25 and $58.00 per square foot for floors 26-42.
The appraisal identified eight directly competitive properties built between 1972 and 2006 and ranging in size from 395,000 to 2.3 million square feet. The comparable properties reported occupancies ranging from 35.6% to 100.0% with a weighted average of 83.6%. Asking rents for the comparable properties range from $45.00 to $65.00 per square foot.
According to the appraisal, approximately 3.0 million square feet of office space has become available at several buildings in the Brookfield Place complex and the newly completed Four World Trade Center. The majority of the new space coming online has larger floor plates with asking rents of $55 to $70 per square foot and caters to a different tenant profile than 17 State Street, which has smaller floor plates.
The property is managed by RFR Realty LLC, an affiliate of the borrower.
At closing, an affiliate of the sponsors entered into a master lease covering approximately 14,837 square feet (2.6% of the net rentable area) through July 31, 2026. The monthly master lease payment (which is not included in the underwritten income) is $64,891.
Occupancy including the master leased space is 93.4% and the UW NCF DSCR including the cash flow from the master lease for the 17 State Street Whole Loan is 1.88x and 1.31x for the 17 State Street Whole Loan and the total debt (including the related mezzanine loan), respectively.
The previously existing debt had a maturity date of April 2014 and was securitized in the BACM 2004-3 transaction. Refinancing of the previously existing debt was delayed, in part, as a result of negotiations between the sponsors and RREEF on behalf of a RREEF Fund which held subordinate investments in 17 State Street and three other assets controlled by the sponsors. As a result of the delay, the mortgage loan entered maturity default.
In May 2014, JPMCB provided a bridge loan to the predecessor-in-interest to the borrower in order to pay off the previously existing mortgage debt at par which allowed the sponsor to continue negotiations with RREEF.
In July 2014, the current loan funded and the proceeds were used to pay off the bridge financing along with approximately $63.1 million of the subordinate investments, with the remaining $40.0 million being converted to a mezzanine loan which is held by RREEF on behalf of a RREEF Fund and remains cross-defaulted with the subordinate investments on three other assets controlled by the sponsor.
The $40.0 million mezzanine loan is secured by the direct and indirect equity interests in the borrower and is coterminous with the mortgage loan. The mezzanine loan is interest-only for the term of the loan and has a 8.82000% coupon. Including the mezzanine loan, the Cut-off Date LTV is 67.7%, the UW NCF DSCR is 1.24x and the UW NOI Debt Yield is 6.9%.
The mezzanine loan is cross-defaulted with $88.5 million of subordinate financing encumbering three other assets.
The three other assets are all located in Manhattan at 160 Fifth Avenue (141,497 square feet, 100% occupied), 85 Fifth Avenue (16,987 square feet, 100% occupied) and 90 Fifth Avenue (137,004 square feet, 40.8% occupied). The initial amount of the subordinate financing was $32,000,000 for 90 Fifth Avenue, $39,000,000 for 160 Fifth Avenue and $17,500,000 for 85 Fifth Avenue. The interest rate required under the subordinate financing documents is 9.75% for 90 Fifth Avenue and 8.0% for each of the other two properties, and each requires interest-only payments, with the principal to be repaid on the related maturity dates (August 30, 2017 for 90 Fifth Avenue with no extension option and December 17, 2015 for the other two properties, which may be extended to December 17, 2017 in each case).
Upon 90 Fifth Avenue achieving an occupancy of 90.0%, provided that at such time no event of default exists under the 17 State Street mezzanine loan or the subordinate financing referenced above, the 17 State Street mezzanine loan will no longer be cross defaulted with any subordinate financing. At the time the subordinate financing was put in place at 90 Fifth Avenue, a debt service reserve was established to cover both the mortgage debt and the subordinate financing through maturity for 90 Fifth Avenue.
The total mortgage debt across all four assets including 17 State Street is approximately $363.4 million, which equates to a 49.9% LTV and the total mortgage debt and subordinate financing across all four assets is approximately $491.9 million, which equates to a LTV of 67.5%. The debt service coverage ratio across all four assets including 17 State Street is approximately 1.93x on the combined mortgage debt and 1.15x including the combined mortgage debt and subordinate financing.