SL Green Sells Mezz Loan at 33% Discount

A syndicate organized by Deutsche Bank has bought a $95 million mezzanine loan on a Midtown Manhattan office condominium from SL Green at a discount of about 33%, in the latest sign of how far values have dropped even for core properties.

The 561,000-square-foot condominium, at 1166 Avenue of the Americas, is controlled by Edward J. Minksoff Equities, which is believed to be part of the Deutsche syndicate. The deal, which closed a couple of weeks ago, was brokered by Eastdil Secured.

Some market players suggested that the sale pegs the condo's value at roughly $275 million - the $65 million that the Deutsche syndicate paid for the mezzanine loan, plus the $210 million balance on the condo's senior mortgage. That valuation works out to $490/sf. By comparison, Minskoff paid $725/sf, or $135.5 million, at yearend 2006 for a separate 187,000-sf office condo in the fully leased building.

As part of the new transaction, the Deutsche syndicate also assumed SL Green's 8% equity stake in the condo, although the estimated value of that stake is currently close to zero given the heavy leverage.

SL Green assumed the equity stake and the mezzanine loan in 2007 via its $4.5 billion takeover of Reckson Associates Realty of Uniondale, N.Y. The remaining equity stakes in the condo are held by Minskoff (55%) and developer Louis Cappelli (37%).

The condo covers floors 7-21 in the 44-story building. It is leased until 2020 to J.P. Morgan, which has subleased much of the space to Marsh & McLennan. The 1.6 million-sf building also includes a 902,000-sf office condo (on floors 22-44) owned and mostly occupied by Marsh & McLennan and the 187,000-sf condo (on floors 2-6) owned by Minskoff and leased to D.E. Shaw, Sprint Communications and Christian & Timbers. The property, between West 45th and West 46th Streets, was constructed in 1974 and renovated from 2001 to 2003.

The mezzanine loan acquired by the Deutsche syndicate was originated in December 2005 with a 15-year term. The coupon is 6% until next March, when it jumps to 8.5% through March 2015. At that point, the rate climbs to 11%. The average rate is 9%. By acquiring the loan at a 33% discount to face value, the Deutsche syndicate will receive an unleveraged return of more than 13%. Deutsche evidently has a small equity interest in the syndicate and may be providing debt financing to the group.

New York-based Minskoff and an SL Green spokesman declined to comment on the transaction. Calls to Eastdil broker Douglas Harmon and Deutsche weren't returned.

SL Green, a New York REIT, has been quietly shopping a number of buildings, property stakes and loans in recent months in an effort to raise cash. It recently took bids on the 921,000-sf building at 485 Lexington Avenue in Manhattan, after a proposed deal fell through in February. Bids now are north of $510 million. Cushman & Wakefield is the broker.

Earlier this year, SL Green spoke to select players about the 1.4 million-sf tower at 919 Third Avenue and the leasehold interest in the 201,000-sf building at 461 Fifth Avenue, but no deals were struck. Eastdil advised SL Green on those efforts. In May, the company raised $387.4 million via an offering of common stock.

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