Owners Of Troubled 110 William Reach Deal For 640K SF Lease, Debt Restructuring
Pacific Oak and Savanna say they are close to restructuring the debt on a 930K SF Financial District office tower that has been in default after finding a tenant to fill more than half of the space in the building.
Pacific Oak said in a Securities and Exchange Commission filing last month that it has agreed to the main terms of a lease with a tenant to occupy about 640K SF at 110 William St., filling the half-empty building. The filing referred to the tenant as a "NYC Agency," which would pay $44 per SF in a 20-year lease, increasing $4 per SF every five years, with a tenant option to extend by two additional five-year terms.
A Pacific Oak fund owns 60% of the building, while Savanna owns the remaining 40%. Savanna and Pacific Oak defaulted on their $349M loan on the building last summer before securing several extensions with the lender, Invesco Real Estate.
In the May filing, Pacific Oak said it is on track to restructure the loan, which had a principal interest of $334.4M and an effective interest rate over 10% as of the end of March. The restructuring would see Savanna's ownership interest reduced to zero.
Pacific Oak would own 100% of 110 William and put between $110M and $130M of new equity into the building in the form of tenant improvements, it said in the filing. It estimated the building would generate $29.1M in net operating income.
The city agency would occupy its space in phases, 200K SF at a time, fully moving in by 2025, according to the filing. It would pay approximately $28M per year in rent once the space is fully occupied.
A Pacific Oak spokesperson declined to comment. Representatives for Savanna and New York City's Department of Citywide Administrative Services, which handles the city's real estate transactions, didn't respond to requests for comment by press time.
The loan modification, set to be secured in the next 90 days, would convert an $85.7M mezzanine loan to preferred equity. The senior and supplemental mortgage would be brought current and have a three-year term with two one-year extension options. The mortgage would provide the landlords as much as $56.7M in future advances for capital spending and carrying costs.
Pacific Oak said in January after its third extension from Invesco that it was close to securing a tenant after departures had left the building with cash flow challenges. The New York City Economic Development Corp. had one-third of the building, but relocated to 222K SF at One Liberty Plaza in 2017. The New York City Housing Development Corp. also moved out of the building for a new lease at 120 Broadway.
Savanna and KBS Capital Advisors bought the building for $261M in 2014, The Real Deal reported. Pacific Oak took over ownership of the stake in the property when the firm, set up by KBS co-founders, began running three KBS REITs in 2019.
Jay Rickey contributed reporting for this article.