Lexington Ave Building Secures 16 Year Loan Extension at a Price

SL Green Realty has secured a mortgage extension for the Graybar Building located at 420 Lexington Avenue. The unusually long 16-year extension came at a steep price since the 8.1% interest rate is more than twice the previous 3.8% rate according to reported info in a report released by KBRA. The resulting increased cost of the extension that closed in October, “combined with payments on more than $50 million in subordinate debt, will cause the cost of hanging on to this landmark property to double, to $22 million a year.” SL Green controls the 1.5 million-square-foot landmarked building under a ground lease expiring December 31, 2029. KBRA’s report indicated that the rent is “poised to more than double to $25 million a year” following its expiration. Currently generating $43 million in net operating income, according to KBRA, the potential exists that the cost to hold onto the asset, could exceed its earnings. SL Green took control of the Graybar Building in 1998, and according to city records entered into a new lease in 2007 providing the option to extend the ground lease through 2050 plus two 15-year renewal options that would extend the term through 2080 if exercised. The vacancy rate at the Graybar is currently about 13%.  Larger tenants include MTA-subsidiary Metro-North Commuter Railroad Co., which occupies over 350,000 square feet following renewal and expansion deals in 2013, 2015 and 2019; and New York Life Insurance occupies 114,709 square feet following a renewal and expansion deal secured in 2016 according to press reports at the time. A spokesperson for the REIT stated that additional tenants that haven’t moved in yet and are “paying rents at or above prepandemic levels,” are expected to increase occupancy to 95% this year.

Source:    https://www.crainsnewyork.com/real-estate/graybar-building-mortgage-more-doubles