(Bloomberg) — A behemoth $3.4 billion bond sale backed by Rockefeller Center, one of New York City’s real estate crown jewels, wrapped up on Thursday, adding the iconic attraction to a deluge of commercial mortgage-backed securities sold in 2024.
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The Rockefeller Center deal, run by Bank of America Corp. and Wells Fargo & Co., is the biggest sale in the sector since June 2021 when a CMBS bond backed by 560 hotel properties associated with Extended Stay America sold for $4.65 billion. It topped other large CMBS deals that priced this year, including a $2.95 billion Blackstone-sponsored transaction backed by an apartment portfolio, according to data compiled by Bloomberg News.
“Over the course of the year, we saw the CMBS market re-liquefying and over the course of the summer, we decided to get an early start on the refinancing,” said Rob Speyer, chief executive officer of Tishman Speyer, one of the property’s owners. “We saw the capital markets hungry for high-quality assets and we delivered one of the best ones in the world.”
Demand for portions of Rockefeller Center’s debt was substantial, according to people familiar with the matter. The financing terms tightened 15 basis points in the higher-rated tranches from where guidance was set. The top tranche bondholders will receive yields of around 5.4%, according to a person familiar with the matter who was not authorized to speak publicly.
“We had a thoughtful marketing process to be able to tell this full story around why this asset is so unique, and I think clearly it resonated with investors because of the ultimate demand for the bonds,” said Ken Cohen, head of US real estate structured finance at Bank of America.
Meanwhile, the borrower will be expected to pay a fixed interest rate of just over 6.2% for the five-year term, according to an Oct. 18 statement from Tishman that called the deal the largest issuance ever for a single office asset.
The massive sale marks another milestone for the slowly recovering commercial real estate market. Investors have been seeking out trophy assets like Rockefeller Center, a six-block complex with over a dozen buildings as well as an ice rink, observation deck and more than 400 office and retail spaces.
Investors have backed roughly $90 billion in private-label CMBS so far in 2024, outpacing year-to-date amounts for most years over the prior decade, according to data compiled by Bloomberg News.
“This is a positive event for more traditional office owners in New York,” Cohen said. “If you have a high-quality piece of office in New York that has great sponsorship that is taking care of the asset and the asset itself is well-occupied and leased, the CMBS market is open.”
However, lower tier properties have found it harder to raise debt financing, beaten down by hybrid-work trends that began during the pandemic, as well as rising costs. The dynamic has caused disruption even within highly-rated credits such as the 1740 Broadway building, which handed investors the first loss on top-rated bonds backed by commercial real estate debt since the financial crisis.
As Chris Sullivan, chief investment officer of the United Nations Federal Credit Union, put it, the Rockefeller Center deal does not represent the broader New York office market. Instead, it “is really a reflection of the iconic nature of the underlying collateral, its location, occupancy level and tenant roster and a host of other things that make this offering highly desirable,” he said.
The $3.4 billion bond is part of a larger $3.5 billion financing package that also includes a $100 million in companion loans that will be contributed to future conduit transactions, according to a person familiar with the matter who was not authorized to speak publicly.
Proceeds from the Rockefeller Center debt sale will go toward repaying $3 billion in existing debt, fund around $247 million of reserves and return $180 million to property owners Tishman and Henry Crown & Co., according to a pre-sale report from Kroll Bond Rating Agency.
Spokespeople for Wells Fargo and Henry Crown did not respond to requests for comment.
–With assistance from Carmen Arroyo.
(Updates with total finance package size in paragraph 12)
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