Aby Rosen/RFR - Lever House
Anyone else see the news about Aby Rosen and the Lever House yesterday? Seems this has been going on for years, I've followed some of the background but still don't fully understand it.
Can anyone explain what happened?
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Rosen had a ground lease on the property which had a big rate reset coming up. Such a large rate increase he could not refinance his mortgage which he ultimately defaulted on. The Korein's own the land and didn't want the building back so they inserted Brookfield/Waterman in a sandwich lease making Brookfield, Rosen's new landlord. Which means when Rosen inevitably gave up the lease Brookfield would then operate the building. That ended up happening last week. Brookfield/Waterman now control the building under a new lease negotiated with the Korein's.
The structure initially:
Korein Family (Ground Lessor)
Rosen (Ground Lessee, controls operations of the building, pays rent to Korein)
Then: Korein (Lessor)
Brookfield/Waterman (Lessee in sandwich, pays rent to Korein)
Rosen ("sublessee," pays rent to Brookfield)
Now: Korein Family (Ground Lessor)
Brookfield/Waterman (Ground Lessee, controls operations of the building, pays rent to Korein)
Korein's essentially slid Brookfield in between themselves and Rosen. Korein's then had a better tenant (more like counter-party in this situation) and Brookfield can deal with the hassle of Rosen. Also allowing Brookfield to be the first in line to control the property when Rosen goes out. Now that Rosen is out its being reported there is a new ground lease in place between Korein and Brookfield.
I'm not connected in any way with whats going on there so the only info I have is what the rest of the community has.
I was waiting on you (;
What being in NYC is like right now:
Ok thank you for the response - a few questions.
From what I understand Rosen was paying $6M/yr for the ground lease and the rent reset would've brought it to $20M/yr. Can you explain the refinancing part? Rosen initially paid the Korien family $30M upfront then put $30M into improvements from what I read (many years ago) - what does he have to refinance? (I also don't 100% get ground leases, Rosen can make improvements but at the end it reverts back to Korien family?? - side question is what value does that bring to Rosen over say the 99 year GL life if it all reverts back to the family (fees?))
Also, why is the Korein family willing to work with Brookfield/Waterman and not just work with Rosen initially to work out a deal (I'm sure they tried but). He's been with the property for decades so if you can explain why (assuming) Brookfield paying less than $6M/yr to be sandwiched in/Rosens new landlord and now them willing to negotiate w/ Brookfield/Waterman and not Rosen who is also a big player in NYC if you can...
Thanks again.
Ok so actually just read he had a $110M CMBS loan on the property (in 2017), is he getting that money against the 99 year GL he has?
And if he can't refinance, why can't he wait a year or so use capital reserves and refinance when the market has recovered from Covid?
Off topic but related. Great post!
Would appreciate some color on the following topic.
For a ground lease project in a secondary market, do you assume a higher cap rate?
For example, if a developer builds a 100K SF office project on a 50 year ground lease in a secondary market or opportunity zone, if market cap rate is 6% in the market today, do you assume higher cap rate of 6.25% or how do you adjust going in cap-rate for a stabilized building on a ground lease? How do you adjust for the ground lease expiration 10 years out for a new development project? Understand your impact to the NOI of the ground lease but there is risk associated with the ground lease as you get closer to expiration 30 to 40 years out.
The answer is "yes" but to what level depends on the deal and its terms. Less term higher cap, higher rent higher cap, basically anything that make it less like a fee sale, higher cap.
If there's only 10 years left realistically I would say thats unsellable but you would value using DCF treating it kind of like a bond with no residual value after year 10.
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