Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
New York’s Rockefeller Center is finalising plans to raise $3.5bn to refinance debt in a big test of investors’ appetite for one of the most beaten-down corners of the property market: massive urban office towers.
Bankers at Bank of America and Wells Fargo are leading the offering, which is being structured as a single-asset, single-borrower, commercial mortgage-backed security for the Tishman Speyer-owned midtown Manhattan landmark, according to people briefed on the matter.
Although the financing has not been completed, Tishman and would-be lenders believe the capital raise will be successful, according to one of the people involved in the effort. The Canada Pension Plan Investment Board was in talks to participate in the transaction, they said.
The extent of the success or failure of the deal for the iconic art deco complex is being viewed as a bellwether for the midtown office market, with several other large asset owners — including Brookfield — watching the transaction ahead of launching their own refinancing efforts for trophy assets.
Rockefeller Center has been able to maintain high occupancy levels and draws throngs of tourists to its ice skating rink, Radio City Music Hall, annual Christmas tree lighting, restaurants and profitable retail outposts. Tenants in its 10 office buildings include the investment boutique Lazard, Deloitte, several law firms and other big corporate employers. The 67-story main tower, known as “30 Rock”, is also home to NBC Studios, where the network films the show Saturday Night Live.
“If you want to survive as an office in this market, you need to have a differentiated product and that is what they’ve done,” said one real estate executive following the refinancing. “Rockefeller Center is in an incredible location and it is highly, highly amenitised.”
Investors have been wary of financing offices since the Covid-19 pandemic, worried the increase in hybrid work arrangements would slash demand for traditional office space. Although office vacancy rates have risen sharply in the US and Europe, real estate owners are hopeful that top-tier offices are finding their footing and demonstrating robust demand from occupiers.
Even if debt markets begin to thaw for marquee properties, the crisis in commercial real estate is still rattling investors. The slide in office values has pushed many owners underwater on their mortgages, and a growing cohort have abandoned properties altogether — turning the buildings over to lenders. Others are ploughing ahead with expensive gut renovations in the hopes they will attract new tenants who are seeking remodelled floors and amenities such as fitness centres.
The 1930s masterpiece built for the Rockefeller family has been managed by Tishman Speyer for decades. The family-led property group bought the complex in 2000 in partnership with the billionaire Crown family of Chicago.
Tishman has invested in boosting the centre’s retail, restaurants and visitor attractions to make the area a destination and increase its appeal to office workers. The company has said its offices there are roughly 93 per cent full. Tishman Speyer declined to comment.
Brokerage Newmark said Midtown office leasing recorded “the strongest six month start to the year since 2019”. Nearly 20 per cent of Manhattan office space was available as of June, up from about 12 per cent just before the Covid-19 pandemic hit in 2020. Midtown has less space on the market at 17 per cent.
A deal at Rockefeller Center could unlock a series of major refinancings of trophy office complexes, with the MetLife building, Brookfield’s Manhattan West development and Tishman’s Hudson Yards buildings all potentially in line for deals, according to market observers.
Bank of America, Wells Fargo and Canada’s pension board declined to comment.
Single-asset deals nonetheless carry inherent risk as the lenders are ultimately exposed to just one borrower. If the property loses a major tenant or is not properly maintained and cash flows drop, it can lead to losses for creditors.
Those following the refinancing concede that a successful deal for Rockefeller Center will not signal an all clear for the entire office market, given the deep problems facing landlords in Manhattan and elsewhere.
“It is a ray of hope,” said the real estate executive. “For the good stuff you have record rents and not a lot of availability. On the bad stuff, it is either just land value or offices that need to be converted to residential space.”
Additional reporting by Sun Yu