Seagram Building's $1.2 Billion Refinancing: A Test of Office Market Appetite

The Seagram Building, a 38-story, Class-A office tower in Midtown Manhattan, is set to undergo a significant financial transformation with a $1.2 billion bond deal. This refinancing package, rated by KBRA, is a fixed rate, interest-only mortgage loan with a four-year term and monthly interest-only payments based on an assumed interest rate of 6.25%. The loan is secured by the borrower's fee simple interest in 375 Park Avenue, the iconic Seagram Building, which contains 859,934 square feet and was built in 1958.

RFR Holding, the owner of the Seagram Building, is facing a maturing debt package that comprises $783 million in senior CMBS debt from Citigroup and Deutsche Bank, along with $217 million of mezzanine loans. Additionally, an additional $100 million of preferred equity in the deal, provided by MSD Partners, is also maturing alongside the larger package. If not paid off, MSD can purchase the preferred equity at par and exercise mezzanine rights. The total capital stack RFR needs to refinance the Seagram Building amounts to $1.1 billion.

The refinancing decision comes amidst a challenging office market landscape, with more than $16 billion in loans secured by commercial properties scheduled to mature this year in New York City. The Seagram Building's $783 million CMBS debt is one of the most significant loans set to mature this year, making it a crucial test case for lender appetite regarding office properties in an era of raised interest rates and hybrid work.

RFR Holding has been proactive in adapting to the changing market conditions, recently investing $25 million in building upgrades, including the creation of a 35,000-square-foot amenity center called Seagram Playground. This addition features various recreational facilities designed to attract young workers and cater to the evolving preferences of office tenants. The firm has also seen a rebound in leasing occupancy, with the property now around 96 percent leased and a weighted average of remaining term by tenants of 9.2 years.

The $1.2 billion bond deal represents a significant shift from the original financing package secured by RFR Holding a decade ago. This change in financing may be influenced by market conditions, the property's performance, interest rates, and changes in the preferred equity component. As the office sector continues to face headwinds due to changing work behaviors and preferences, the Seagram Building's refinancing decision serves as a litmus test for lender appetite and the overall investment thesis for office properties in New York City.

In conclusion, the Seagram Building's $1.2 billion refinancing deal is a critical development in the New York City office market, reflecting the challenges and opportunities faced by property owners in a changing landscape. As RFR Holding navigates the refinancing process, the success of this deal will provide valuable insights into the market's appetite for office properties and the potential for long-term investment in the sector.