It has been reported that Amazon has signed a letter of intent to occupy 1.0 million square feet in the 1.4-million-square-foot One Court Square office building in Long Island City, Queens. The lease would provide a sigh of relief for CMBS investors and perhaps a bonanza in terms of increased building value for the owners.
One Court Square was originally closed as a CMBS conduit loan in August 2005. The 50-story, Class A office property was leased to Citibank in 1990 for 30 years, until May 2020, on a triple net basis. The property was built-to-suit for Citibank and has been fully occupied by Citibank since the building’s construction in 1989. It was most recently renovated in 2012 and 2014. The rental rate increases 1% per year, with a rental rate of $24.60 per square foot during the final year of the lease.
The 2005 CMBS conduit loan financing totaled $315 million and was structured with interest-only payments for its entire 10-year term based on a 4.90% interest rate. When the loan matured in 2015, it was refinanced with a 5-year interest-only CMBS conduit loan at 3.89% that would mature in the same year as the Citibank lease expiration, creating substantial vacancy risk should Citibank leave the building in 2020.
With the Amazon lease and announcement that Citibank will move 1,100 workers out of the space to make way for Amazon, the vacancy risk on the CMBS loan will be mitigated, paving the way for the loan to be refinanced. In addition, market rents for comparable office space in Long Island City have jumped to $40-$50 per square foot or more, well in excess of the $24.60 Citibank will pay for its final lease year. Should these rents be achieved, the building could increase in value from $650 million in 2015 to over $1 billion.