NEW YORK CITY — Starwood Property Trust (NYSE: STWD) and Starwood Capital Group have sold a 25 percent interest in the $475 million first mortgage and mezzanine financing on 701 Seventh Avenue, a 10-story retail building located in Times Square, to Vornado Realty Trust (NYSE:VNO). The financing will be used for the property’s acquisition and redevelopment, which includes new retail tenants and signage.
Starwood Property Trust and Starwood Capital co-originated the financing on behalf of the borrower, a group led by New Valley LLC, which is owned by Vector Group Ltd., The Witkoff Group and Winthrop Realty Trust. Other entities of the borrowing group include Infinity Urban Century and Maefield Development.
Howard Lorber, president and CEO of Vector Group, envisions the redeveloped property as more than just a retail destination. “We see many attractive redevelopment opportunities for this site, which will include premium space for retail, entertainment, food and beverage businesses, as well as a site for a potential 30-story hotel,” says Lorber.
For the acquisition and redevelopment financing, $375 million was funded at the closing of the acquisition and $100 million will be funded upon reaching certain milestones during the redevelopment. Starwood Property Trust, Starwood Capital and Vornado have now funded $210.9 million, $70.3 million and $93.8 million, respectively. Starwood Capital funded its portion through an investment vehicle, Starwood Distressed Opportunity Fund IX.
Additionally, each party will fund its pro rata share of any future fundings. Following the sale of a 25 percent interest to Vornado, Starwood Property Trust and Starwood Capital kept the controlling position in both the first mortgage and mezzanine loans.
The lenders intend to sell the first mortgage loan in the near term and retain the mezzanine loan. The existing lenders expect the mezzanine loan to generate an internal rate of return in excess of 14 percent before attributing value to the equity participation received in the transaction, which could be material.
Starwood Property Trust’s stock price closed at $22.61 per share on Tuesday, up from trading at $18.67 per share at this time last year. Vornado’s stock price closed at $80.70 per share on Tuesday, down from trading at $80.83 at this time last year.
— John Nelson