When Jeff Gural’s GFP Real Estate acquired 40 Worth Street in New York’s Tribeca neighborhood in the 1980s, the submarket did not quite have the panache it has today. But a lot has changed over the years, including the profile of tenants that occupy the roughly 800,000-square-foot building.
The New York-based manager in July obtained a loan of roughly $191 million from Wells Fargo, TD Bank and BankUnited to build out a 200,000-square-foot space for The Legal Aid Society. The move illustrates how the building, which once had a tenant roster made up of mostly city agencies, now caters to non-profits, says Roy Lapidus, a senior managing director at GFP.
“Tribeca wasn’t Tribeca in 1980,” Lapidus says. “And at that time, the building was filled with city agencies and there was a concern around what would happen if these agencies left.”
The concern proved prophetic, as the city in 2009 began to consolidate its agencies into its own buildings. And when the Department of Transportation moved out in the 2009-10 era, the building was at a crossroads.
“That was the impetus to upgrade the building,” Lapidus says. “We started to ask, ‘Do we convert it to a hotel? Or a residence?’ But then we were able to get [clothing retailer] Gap to take the top six floors and were able to upgrade the building from head to toe. We restored the lobby to its original state and went back in time to give it an old-world feel.”
As the building’s tenant roster shifted, the Gural family began to work with its contacts in the non-profit world. Other tenants include Public Health Solutions, Legal Services NYC and Innocence Project, as well as smaller non-profits, Lapidus says.
The Wells Fargo-led consortium provided a seven-year loan with fixed- and floating-rate components. About $35 million of the loan will be used to upgrade the Legal Aid space, with the remainder to refinance existing debt from Capital One. The initial funding totals about $155.7 million, with the remainder to be drawn over the next 18 to 24 months as GFP builds out the site.
The current lenders were able in part to secure the deal by offering a seven-year term with an expiration that coincides with the end of Gap’s lease, adds Paul Talbot, a senior managing director at advisory firm Newmark, which arranged the loan.
The sponsor went out at the beginning of the year to secure the financing and was able to lock in prior to the Federal Reserve’s move in June to increase interest rates by 75 basis points, Talbot adds. Despite the volatility in the market this time around – and also when GFP went out into the market in 2009 – there was interest from numerous lenders due to the property’s performance and sponsorship.
“That was a very difficult time to go and find financing in 2009 but Capital One and TD stepped up, and the net income on the building kept exceeding projections over the next five years,” Talbot adds, noting this stability was a draw for the current lender group. “The current loan offers the borrower much more flexibility around making decisions for the future of the building.”