GFP-led JV lines up $536m loan for landmark office-to-resi conversion

The sponsors will use the loan to acquire and redevelop 25 Water Street, a 1.1 million-square-foot office tower in the Financial District, into a 1,300-unit residential property, says Jordan Roeschlaub, a vice-chairman and co-head of the debt and structured finance team at Newmark, which arranged the financing. 

The plans come at a time when New York is both suffering from a shortage of residential units and an overhang of office. New York-based GFP and its partners, also local investment management companies, paid about $250 million for the property, according to published reports.

‘A unique opportunity’

While office-to-residential conversions can be difficult, the stars aligned for what Roeschlaub believes is a unique opportunity for an experienced sponsorship group. In addition to being able to acquire the property at an attractive basis, the sponsors are well-known to lenders. GFP recently completed the acquisition and development of about $2.2 billion of properties in New York, while Metro Loft has completed the conversion of more than five million square feet of office space in New York over the past 20 years.

“The sponsors were able to vacate all tenants by closing, allowing them to begin the renovation and construction process immediately. Further, the light, air and setback of adjacent buildings are hard to find in dense financial districts. This opportunity provided all of this for the as-of-right use as residential units,” he says.

Beating uncertainty

Roeschlaub says Newmark was able to bring several lenders to the table despite a period of illiquidity in the debt markets that has slowed both investment sales and lending activity. 

“Lenders were attracted to the opportunity given collective sponsorship and the reasonable basis on the debt request,” he adds. “The strong trends in the residential leasing market in New York supported the assumptions in the sponsor’s underwriting.”

Additionally, Metro Loft recently completed a similar transaction at a nearby asset, 180 Water Street, which helped the market get comfortable with their ability to execute the business plan. “The evolution of the debt market posed a challenge at times, but we were able to sell through that and get people comfortable with the investment thesis,” he adds.

Upon redevelopment, the 1969-vintage, 22-story property will be renovated to offer studio to four-bedroom units, with amenities that include a basketball court, a steam room and both indoor and outdoor pools. The property also has additional structure features, including proximity to a dozen subway lines as well as plazas and a public park.

Dustin Stolly, vice-chairman and co-head of the debt and structured finance team, and senior managing director Christopher Kramer also were part of the team that put together the loan.