Six years after construction started, the developer of 3 World Trade Center is planning to bring a $1.63 billion long-term tax-exempt financing for the project to the market.
Experts say that the bonds will have unusual, though not worrisome, features for a municipal bond.
The unrated tax-exempt refunding bonds will be sold through New York Liberty Development Corp. A professional familiar with the bonds said he expected they would be sold on Oct. 28 or Oct. 29.
Proceeds will be used for the development and construction of 3 World Trade Center in downtown Manhattan. With construction having started in 2008, the first seven floors of the building have been completed.
The building is ultimately planned for 69 floors above grade and 2.5 million rentable square feet, with 58 office floors.
One way the bonds will be unusual is that they are municipal bonds that will fund the construction of a private office building.
Federal laws passed after the attacks of Sept. 11, 2001 to boost the recovery of New York, particularly downtown, permitted the issuance of Liberty Zone and Recovery Zone Bonds on a tax-exempt basis for projects that would normally have to be issued on a taxable basis.
This month's bonds will provide a long-term financing structure for 3 WTC by refunding short-term debt issued under the Liberty Zone and Recovery Zone programs.
It is unusual for tax-exempt municipal bonds to be issued to build a commercial office building, a professional involved with the deal said. This explains why the bonds will be unrated, he said.
When the ratings agencies were contacted about giving the bonds a rating they either said they could not because they were unusual for a muni or they could but would need more time than the developer had to give, according to the deal professional. The developer is 3 World Trade Center, LLC, an affiliate of Silverstein Properties.
In response a professional at one of the ratings agencies said he was unaware of anyone coming to his agency to seek a rating for 3 World Trade Center. He said that securitizations for construction loans are unusual but not unheard of. He said his agency had rated such securitizations before but they were more difficult to rate than more run-of-the-mill bonds.
The bonds are similar to bonds sold by the New York Industrial Development Authority in 2005 for 7 World Trade Center, the professional familiar with the deal said. The tax-exempt $475 million bond was for constructing the building and was sold without ratings, he said.
When the bond was refinanced in 2011 or 2012 there was a rating. The key difference was that the building was then occupied and with a demonstrated revenue stream could more easily get a rating, he said.
Group M Worldwide has signed an agreement to lease a little more than 20% of the office space at 3 WTC. There are no other contracts to lease the office space.
Noting that the bond's preliminary official statement was 2,700 pages, Municipal Market Advisors managing director Matt Fabian said he had not read it. He said the size of the bond and the size of the POS made the bond unusual.
MMA's indexes of high yield municipal funds were up 8 to 11% from the start of the year to Oct. 10, before the most recent rally, Fabian said. If there is sufficient yield connected with the 3 WTC bonds there should be no problem finding buyers, he said.
The bonds are to be sold in three tranches: classes 1, 2, and 3. Class 1 bonds that will have a payment priority over Class 2 bonds, which will have a priority over Class 3 bonds. According to the POS, the tentative dates for maturity of the Class 1 and 3 bonds is 2044 and for the Class 2 bonds is 2041. The POS indicates there will be a general optional redemption date and a make-whole optional redemption date, but these dates have not yet been set.
The Port Authority of New York and New Jersey owns the site and will own the building. The developer will lease the building through 2100. The Port Authority has made several promises to support the bond and the construction of the building. Among these are to contribute $210 million in funds from New York City and New York State for construction. It has also promised to hand over $159 million in insurance payments from the events of Sept. 11, 2001 toward the construction of the building. The authority made a variety of other financial promises to support the project.
"The most interesting thing [about this deal] is how the Class 3 bonds are structured," said Ben Thypin, director of market analytics at Real Capital Analytics, who is familiar with office building construction financing. "The Port Authority's backstop financing has a higher lien priority than the class 3 bonds and it cannot be used to fund the debt service payments on those class 3 bonds."
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Ben Carlos Thypin
I am currently the co-founder of Quantierra, the world's first data driven real estate brokerage and investment manager. In my former life as Director of Market Analysis at Real Capital Analytics, I worked with press outlets large and small to provide them with great data and insightful commentary. Here are some of the results of this collaboration. For the rest, please check out the News Archive.