Press

By Keiko Morris and Konrad Putzier | Feb. 21, 2019 7:00 a.m. ET

‘Every deal was contingent on Amazon.’ Retailer’s pull out from Queens scuttled New York property firm’s plans to refinance and sell stakes in Long Island City building

There may be nobody who lost more from Amazon.com Inc.’s pull out of Queens than the real-estate investors at Savanna.

The New York-based property firm was one of the biggest beneficiaries of Amazon’s decision to locate a new headquarters in Long Island City. The retailer agreed to rent about one million square feet in Savanna’s green glass office tower near the East River.

Savanna moved quickly to capitalize. It approached lenders to borrow $750 million against the value of the 53-story tower, which Savanna believed would more than double in worth after landing its famous new tenant, according to people familiar with the matter. It launched talks with investors to sell stakes for most of the building, some of these people said.

Now that Amazon has pulled out of Queens after facing local opposition, Savanna’s most attractive property flipped overnight to one of its biggest liabilities.

“Every deal was contingent on Amazon,” a person familiar with the discussions said.

Savanna needs to fill a million-square-foot hole after its main tenant, Citigroup Inc., leaves sometime next year. The talks to refinance the building or sell stakes to new investors are all but dead, say people familiar with the situation.

“It is going to be hard to get a large commercial real-estate loan on a property that is 70% vacant,” said Joe McBride, a director at Trepp, which tracks commercial mortgage-backed securities.

Amazon’s plan for a second headquarters in Long Island City sparked a real-estate frenzy, with investors bidding up condo prices immediately. Commercial property owners saw a sharp rise—and then fall—in the interest in their buildings with Amazon’s commitment and subsequent reversal. But few investors experienced as dramatic a swing in fortune as Savanna did.

The firm has at least $315 million in debt on the building, known as One Court Square, much of it in several commercial mortgage-backed security deals, according to Trepp.

That debt matures in September of 2020.  If Savanna isn’t able to refinance by that time, the company could lose the property to creditors, or a so-called special servicer could agree to a loan modification and extension.

Many people in the real-estate community still expect Savanna to land a new mortgage for the building. But banks would be more reluctant to lend with the property’s gaping vacancy. Savanna would likely have to turn to a private debt fund and pay higher interest rates, according to real-estate consultants.

Savanna gambled on Long Island City when it bought One Court Square in 2014, betting that the decadeslong shift from an industrial neighborhood to a more 24-hour mix of office workers and residents would finally take hold.

“A lot of the tenants who were looking at Long Island City were lower-paying tenants, and there weren’t the signature rent tenants that would drive leasing,” said Craig Deitelzweig, chief executive of real-estate firm Marx Realty. “Amazon was that.”

Around the time Amazon signed a letter of intent to occupy the tower in November at a rent of more than $60 a square foot, Savanna hired brokerage firm Cushman & Wakefield to find investors and brokerage firm JLL to find a new mortgage. Spokesmen for Cushman & Wakefield and JLL declined to comment.

Savanna’s new marketing materials promoted Amazon as the new tenant, according to a person who has seen them. Savanna was in serious negotiations with several potential investors and lenders, though no deal was imminent, according to people familiar with these discussions. Talks with lenders revolved around a mortgage package of $750 million or more, those people said.

View the Full Article