SL Green Realty Corp., a real estate investment trust, is tapping the securitization market to refinance 485 Lexington Ave., a 32-story office building in Midtown Manhattan.

In January, the sponsor obtained a $350 million mortgage from Goldman Sachs; this along with $100 million in mezzanine financing and $7.3 million of new equity were used to refinance existing debt of $450 million, pay closing costs of $4.2 million and fund reserves.

Goldman is using the first-lien mortgage, which pays only interest, and no principal, for its entire 10-year term, as collateral for GSMS 2017-485L, single-asset single-borrower securitization. Eight classes of certificates will be issued, five of which are entitled to principal and interest, two of which is entitled to interest only, and one of which is a residual class.

Both Kroll Bond Rating Agency and Standard & Poor's expect to assign triple-A ratings to the senior tranche of notes to be issued.

In order to comply with the risk retention rule, which took effect in December, a $22.5 million tranche of notes, rated BB+ by Kroll and BB- by S&P, is expected to be sold to a third party; neither ratings agency identified the third-party investor in its presale report.

The property that ultimately serves as collateral for the bonds was built in 1956 and served as the headquarters for TIAA-CREF for 25 years before being acquired by SL Green in 2004. As of January, it was 99.4% leased to 32 tenants. The five largest tenants at the property are SL Green Realty Corp., the sponsor's sole general partner, The Travelers Cos., Advance Magazine Group, Leading Hotels of the World and Fox Sports Digital Media. Together, these five tenants account for 61.1% of the total square footage and 57.2% of total base rent.

Kroll and S&P identified a number of risks to the deal, notably its "moderate" leverage, in Kroll's assessment. The ratings agency puts the loan-to-value ratio of the first-lien mortgage at 80.5%. That's above the average of 17 SASB New York office transactions it has rated to date.

Furthermore, there is approximately $100 million of mezzanine debt held outside the trust, resulting in an all-in LTV, as measured by Kroll, of 103.6%.

S&P puts the LTV at 79.7%; this is based on a valuation that is significantly lower than that of the appraiser; the LTV ratio based on the appraiser's valuation is 45.5%.

The ratings agencies also cite the concentrated tenant rollover risk, as two of the three largest tenants have leases that are scheduled to expire during 2021.

This risk is compounded by the fact that seven office projects totaling approximately 11 million square feet are under construction in Midtown Manhattan and are all scheduled to be completed by 2021, the year when the subject faces its largest rollover.

Under the terms of the loan agreement, with the lender's consent, SL Green is permitted to obtain Property Assessed Clean Energy loans relating to energy retrofit lending programs which are repaid through property assessments, per Kroll.

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