South Korea’s KTB Asset Management Co. Ltd. and two other domestic institutions have invested about $68.5 million in mezzanine debt secured by a Manhattan office building at 850 Third Avenue for an expected annual return of mid-5%.
The debt was issued to refinance around 70% of junior mezzanine loans lent by Blackstone Group, a global investment firm, according to investment banking sources on Feb. 3.
The new debt was restructured to have seniority over the remaining mezzanine loans which Blackstone will continue to hold until maturity.
The New York-based investment giant had been the only mezzanine lender in debt financing of the $463 million acquisition of the office tower by a US property management company and Chinese conglomerate HNA Group in early 2016. Investment banks had lent senior loans for the transaction, and they still hold on to them, according to the sources.
For the investment, KTB Asset has launched a fund in which the two unidentified institutional investors participated. The fund will terminate at the end of 2021. Payment for the deal was completed on Feb. 2.
The 21-story office building in Midtown East, Manhattan was built in 1962 and has gross leasable area of 57,000 square meters. Its current tenants include the New York City Police Department -17th precinct, global TV network Discovery Communications and Radio One.
Driven by higher expected returns from US secured mezzanine and senior debts in the wake of rising interest rates, global capital is flowing into Manhattan office buildings which have a low vacancy rate at the 2% level.
Recently, two South Korean insurance companies had lead managed and made a joint investment of $550 million with other domestic institutions in senior secured debt issued by Brookfield Asset Management for refinancing a skyscraper in Manhattan.
KTB has been accelerating investment in US real estate since creating an overseas alternative investment division last year. In November 2016, the South Korean asset manager had invested around 110 billion won ($96 million) in senior debt secured by Marriott Hotel in Brooklyn, New York. The company will continue to invest in mezzanine debt with a focus on developed countries.
By Daehun Kim
<Edited by Yeonhee Kim>