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Billion dollar borrowers the new norm

New York City isn’t Texas, but when it comes to construction loans, it seems everything is bigger here.
Related Companies just announced it has closed on another $1 billion-plus deal for its Hudson Yards development on the Far West Side of Manhattan.

The $1.3 billion construction loan for 15 Hudson Yards is financed with equity from Related, Oxford and an un-named sovereign wealth fund, and debt was provided by London’s Children’s Investment Fund Foundation as well as tax exempt bonds from the state, according to sources close to the transaction.
That money will pay for the construction of the first residential tower at the 28-acre site, currently the largest mixed-used development underway in the US.

The 960,000 s/f apartment tower is called 15 Hudson Yards. Already under construction and expected to be finished in 2018, it will have both condo and rental units. A sales launch for the condo units is planned for mid-2016.

“Hudson Yards is transforming the west side of Manhattan and this latest transaction represents a continued show of confidence from elite investors and lenders,” said Jeff Blau, CEO of Related, in a press release announcing the loan closing.

Jeff Blau
Jeff Blau

“We have already attracted business leaders in finance, fashion, beauty, consulting, law, tech and media to Hudson Yards; and in just a few short years, we will welcome our first residents to the new neighborhood.”

The first apartment tower in the development will rise in front of the newly-created plaza at the center of Hudson Yards and will also be adjacent to the High Line and directly connected to the Culture Shed — a multi-purpose venue with seven levels of gallery and performance space that will host art, design and special events, including New York’s Fashion Week, according to Related.

The centerpiece of the Hudson Yards Redevelopment Project, the Hudson Yards neighborhood will ultimately include 16 skyscrapers containing more than 12,700,000 s/f of office, residential, and retail space. To date, the total price tag has been put at $20 billion.

Related has already reportedly collected $600 million from investors through the EB-5 program, as well as a $475 million construction loan originated by Starwood Property Group which includes member organizations of the United Brotherhood of Carpenters and Joiners, along with Oxford Properties Group.

Last month, the Commercial Observer reported that Related and Oxford will soon close on a $1.5 billion construction loan to finance the one million square feet of retail, called the Shops & Restaurants at Hudson Yards.

According to the newspaper, the Bank of China, Deutsche Bank, Crédit Agricole and Industrial and Commercial Bank of China are each chipping in on the $1.5 billion construction loan, one of the largest debt deals of 2015.

Sources say that a financing deal is also imminent for 30 Hudson Yards, a 2.6-million-square-foot tower designed by Kohn Pedersen Fox Associates (KPF) that will be the fourth-tallest building in New York and home to the highest outdoor observation deck in the city.

Time Warner Inc. has already acquired more than one million square feet of office space at 30 Hudson Yards and plans to move approximately 5,000 employees from its corporate operations as well as its HBO, Turner Broadcasting and Warner Bros. entities.

Related’s big-time loans aren’t the first to reach the billion dollar mark.

When Silverstein Properties closed on a construction loan for $1.42 billion in 2003 to finance the Time Warner Center at Columbus Circle, it was the largest construction loan ever done in the United States. Last year, the company closed a construction loan for 3 World Trade Center for $1.64 billion, which may have set a new record, according to Silverstein Properties CEO Marty Burger.

Marty Burger
Marty Burger

“These numbers are just astronomical,” said Burger at a panel during NYU Schack’s Capital Markets Conference Nov. 19. “There are only so many players in the world that can put up that type of money.”
Now, Silverstein Properties is on the verge of hitting another record — the company is in the midst of closing on a $2.2 billion construction loan for 2 World Trade Center.

“These are large complicated projects and you want to have fewer players in your desk drawer rather than more,” said Burger.

Anthony La Malfa, a partner in real estate and hospitality services at BDO, said billion dollar loans go with the territory.

“The loans are simply a function of the mega-development projects being undertaken in certain parts of the country and around the world,” said La Malfa. “We’re definitely seeing larger-scale developments as the economy has improved and demand outpaces supply. This will likely be the current norm until supply and demand become more balanced in the larger cities.”

La Malfa added that he sees these kinds of loans continuing as long as there are mega projects still in the pipeline.

“This is part of the real estate cycle, and will likely continue over the next few years as these mega-development projects, such as Hudson Yards and Hunter’s Point South, get completed,” he said. “As the commercial, retail and residential components of these projects come reach completion and are absorbed into the market, we’ll see a slowdown in large-scale mixed-use developments. That being said, the window for construction financing could close abruptly if there’s a significant downturn in ultra-luxury condo sales and leasing of new office and retail space.”

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