Bloomberg News

MetLife, Pacific Life Said to Beat Out Banks on Tower Loan

July 07, 2011

(Adds MetLife executive’s comments on property markets in sixth paragraph.)

July 7 (Bloomberg) -- Vornado Realty Trust is close to obtaining a loan on 555 California St., the home of Bank of America Corp.’s San Francisco headquarters, as competition heats up among lenders for high-profile assignments.

Pacific Life Insurance Co. and MetLife Inc. are poised to beat out a field of Wall Street banks that were aiming to package the loan for sale as securities, according to three people with knowledge of the bidding process. They asked not to be identified because the negotiations are private.

Banks are battling with insurers to lend on the highest- quality U.S. properties as values in large, coastal cities increase. Non-distressed buildings in six major markets have recovered more than half of their post-peak losses, Moody’s Investors Service said in a June 22 statement. Office values in San Francisco rose 9.6 percent in the first quarter from a year earlier, according to Moody’s.

The 555 California St. skyscraper, totaling 1.5 million square feet (139,300 square meters), was constructed in 1969 and served as the entrance area for the 1974 film Towering Inferno, according to Emporis.com, a property database. The 52-story building is the fifth-tallest on the U.S. West Coast, Emporis data show.

Insurer Competition

Wall Street banks have been struggling to land loans on top-tier buildings to bundle into bonds as insurers bid aggressively on the best properties, Deutsche Bank AG analysts led by Harris Trifon said yesterday in a note to clients. MetLife, based in New York, also wrote a $372 million loan on 1285 Avenue of the Americas, a 42-story tower in midtown Manhattan, according to a statement this week from HFF Inc., which arranged the refinancing.

“We’re going to continue to focus on high-quality assets in top-tier markets,” MetLife’s Robert Merck, senior managing director and head of real estate investments, said at a March 21 investor conference. “There’s a real difference between the core primary markets like New York, D.C., San Francisco, L.A.” and property in smaller cities, he said.

Wendy Silverstein, an executive vice president at New York- based Vornado, said last month that “virtually every” bank on Wall Street was bidding for the 555 California loan. The banks were willing to lend as much as $650 million against the tower, which is worth about $1 billion, she said, speaking at a conference for the National Association of Real Estate Investment Trusts on June 8.

Spokespeople for Vornado and MetLife declined to comment. Tennyson Oyler, a spokesman for Newport Beach, California-based Pacific Life, confirmed the company’s participation on the deal.

Mortgage Maturing

Vornado is seeking a loan to pay off a $520 million mortgage maturing in September, according to data compiled by Bloomberg. That loan, originated in 2004 by Bank of America, was packaged and sold as securities, the data show.

Banks have arranged $15.6 billion in commercial mortgage bond sales this year, compared with $11.5 billion in all of 2010, according to Bloomberg data. Standard & Poor’s said in a report yesterday that sales may climb to $35 billion. Offerings plummeted from a record $230 billion in 2007, choking off funding to borrowers with maturing loans.

--Editors: Kara Wetzel, Christine Maurus

To contact the reporters on this story: Sarah Mulholland in New York at smulholland3@bloomberg.net; Andrew Frye in New York at afrye@bloomberg.net

To contact the editors responsible for this story: Dan Kraut at dkraut2@bloomberg.net; Alan Goldstein at agoldstein5@bloomberg.net


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