The New York City Housing Development Corp. is preparing to issue $550 million in multifamily mortgage revenue bonds to refinance the outstanding bonds on Blackstone Real Estate Investment Trust’s landmark apartment tower in the city's financial district.
The Frank Gehry-designed high-rise at 8 Spruce St. is the tallest purpose-built rental building in New York City and the second tallest in the world.
Blackstone REIT expects to pay off the existing mortgage revenue bonds on Dec. 9, according to CoStar loan data. The existing bonds were issued in 2014 with a maturity date of 2024. However, they carried an anticipated repayment date of November 2024.
The New York City Housing Development Corp.’s bond issuance shows support for the 899-unit property in one of the best performing multifamily submarkets in the country. The Financial District apartment market sports a low vacancy rate, at 3.5%, and continues to be defined by renters competing for a limited number of units, according to CoStar.
The relatively tight vacancy rate is partially a product of the slow pace of adding housing to the area, as about 220 units have historically been added annually. That pales in comparison to Manhattan's overall population of nearly 1.6 million.
The Spruce Street tower showed a 3.8% vacancy rate as of the end of August, according to underwriting criteria used to approve issuance of the bonds and reported by Moody’s Investors Service, which is rating the bond offering.
“Frank Gehry’s 8 Spruce Street is an iconic building that offers its residents unique amenities at their doorstep,” a Blackstone REIT spokesperson told CoStar News in an email. “The significant demand for this refinancing reflects the high-quality nature of the property.”
For the year ended 2023, The property posted $20.1 million in the operating cash flow. That was more than enough to pay off its annual debt service of $10.6 million according to the latest annual financial report to bondholders.
The brokerage CBRE completed an appraisal for the property in October in which it concluded the “as is” market value of the property is $802 million, according to Moody’s.
Blackstone REIT paid $930 million for the property in June 2022, according to CoStar data.
The property has benefited from a 20-year tax abatement — currently granting an 80% tax exemption — that expires in 2031, two years after the new bonds would mature, according to Moody’s.
“While the benefits of the exemption will remain in place for the entirety of the loan term, the amount of the tax exemption will phase out — decreasing to 60% in 2025, 40% in 2027 and 20% in 2029,” Moody’s reported. “As the exemption reduces, the operating leverage of the loan will be very different from what is present today. This change in operating leverage may present refinance risk for the loan particularly as the abatement fully expires two years later."
Blackstone REIT, however, would be allowed to add a surcharge as an additional fee to tenants, which may help to partially offset the increase in tax expense, Moody’s said.