Sutton, president of Wharton Properties, and the Midtown-based real estate investment trust SL Green, borrowed a total of $275 million in debt, sources familiar with the transaction said. That’s more than double the prior mortgage amount of $120 million, which they borrowed when they bought the property, located between 56th and 57th streets, in January 2012 for $223 million.
The proceeds of approximately $150 million were divided between Sutton and SL Green, an insider said, and come just five months after the team signed Prada on for an early renewal of 20,000 square feet at the building that will keep them there until 2028. The investment bank Goldman Sachs provided $235 million in first mortgage debt, city records show, replacing the $120 million held by California-based Wells Fargo. The deal closed April 9 but was recorded in May.
The financial brokerage firm Meridian Capital Group represented the borrowers in placing $40 million in mezzanine debt, sources said. Lenders are competing with each other to place debt on properties generating cash flow, said Scott Singer, president of the investment advisory firm, Singer & Bassuk Organization. “The use of mezzanine borrowing in a cash-out situation would indicate that the borrowers have an alternative use of the proceeds in mind,” Singer said. “With mezz spreads on stabilized properties at all-time low levels, it can be an attractive source of funds for a variety of uses.”
Real estate bigwig Jeff Sutton ($2 billion), who commands some of country’s highest rents, including a reported $20 million annually for an American Eagle store on Broadway in Manhattan has been dubbed the “King of New York Retail”.
He owns a ton of stores, including (but far from limited to) American Eagle in Soho, Abercrombie & Fitch and Dolce and Gabbana on Fifth avenue), the West Broadway Ralph Lauren, and Valentino on Madison Avenue.
Mr. Sutton’s firm is particularly recognized for its powerful presence in Manhattan. Headquartered at 500 Fifth Avenue, Wharton Properties has aggressively conquered the surrounding area.
As more lenders join in, and more borrowers look for greater loan leverage, competition for mezzanine capital pieces in investment deals has increased dramatically since 2011, especially in the nation’s gateway markets.
Overseas investors from the Mideast, Asia and Canada have piled in, joining a growing list of mezzanine loan specialists, private equity firms and hedge funds competing with more traditional providers such as institutional investors, insurance companies and mortgage REITs to offer CRE borrowers funding to bridge the gap between what banks have been willing to lend and the equity investors are willing to put at risk. “As a debt and equity placement mortgage broker, we get calls daily from investors who say they’ve got a new bucket of capital for mezzanine debt,” said Dustin Stolly, a mortgage banker and executive vice president at Jones Lang LaSalle.
“The market for larger tranches of mezz financing in major markets like New York City is extraordinarily competitive,” Stolly said. “We see interest rates of anywhere from 5% – 7% for office mezz debt.”
SL Green announced a $925 million bridge financing that constituted 84% of total capital for the $1.1 billion purchase of the Sony Building at 550 Madison Ave. In addition to $175 million in senior mezzanine debt originated by SL Green, the loan includes a $600 million senior loan originated by Bank of China. SL Green sold the senior loan to a private investment manager, and sold half its interest in the junior mezz debt after the financing was complete.
“The more Sony Building-type financing transactions SLG can do – buy wholesale, sell retail — the juicier the all-in yields.