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Trump makes $ 617 million in cash with Vornado from tower bonds

(Bloomberg) – Investors have bought $ 1.2 billion worth of bonds attached to a San Francisco office tower that makes up a large part of Donald Trump’s fortune. The AAA portion of the commercial mortgage-backed security was sold on Friday at a discount margin, or risk premium, of 125 basis points over a month of Libor – roughly in line with other recent office tower deals. The bonds will be used to refinance a loan on the 555 California Street property that will raise $ 617 to joint owners Vornado Realty Trust and Trump.The complex is one of the tallest buildings in San Francisco and is one of two Trump-affiliated office towers that Vornado is refinancing . The other is in New York. While Vornado owns the majority, Trump’s 30% stake is the most valuable part of his portfolio and, according to the Bloomberg Billionaires Index, accounts for about a third of his $ 2.3 billion net worth. The refinance – and the cash windfall for Vornado and Trump – comes months after several banks tied to the former president announced they would no longer work with him following the deadly riot at the U.S. Capitol in January. “Trump’s Bad Record” While the bond found strong demand, at least one investor was put off by the Trump connection. “We looked at the deal and it failed our environmental, social and corporate governance (ESG) process as Trump (since the 1990s) has not only repaid investors but is difficult when it goes in trouble, ”said John Kerschner, head of securitized products at Janus Henderson, in an interview. Kerschner said the offer was cheaper than some other “esoteric” office tower CMBS that deal with slightly substandard real estate, such as a recent deal backed by a loan for office towers in downtown Houston . On the flip side, the price of the deal is the same or slightly higher than some deals associated with higher-quality trophy towers, he added. The proceeds from the 555 California Street CMBS will fund improvements to the buildings and return approximately $ 617 million to owners in a marketing document received from Bloomberg: “For a complex that couldn’t be sold last year, that’s what a high return on equity is arguably next best for the sponsor, “said Christopher Sullivan, chief investment officer for the United Nations Federal Credit Union. “This is a trophy property in a prime location with stable, high-quality, diverse tenants and a high occupancy of the area in light of the pandemic.” Sullivan sees risks, however. The loan is structured as interest-free throughout, which can increase the refinancing risk in addition to a moderate leverage effect. In addition, a third of tenants have the option to terminate their rental contracts, ”which is not surprising given the level of leasing or the uncertainties about space requirements. However, it can present a net cash flow risk, ”he stated. New York Next The refinancing of the New York Tower at 1290 Avenue of the Americas is now “on deck,” said Steve Roth, CEO of Vornado, in a letter to shareholders earlier this month. The refinancing comes after Vornado tried to sell the two assets last year. After the price targets were not met, efforts were discontinued. “We have found that investors are insecure, distracted and handicapped by the inability to travel,” Roth said in the letter to shareholders. “As markets improve, we may re-examine other alternatives for these two buildings,” he added. Earlier this week, Eric Trump, executive vice president of the Trump Organization and Donald Trump’s son, described the property as “arguably two of the best commercial” assets anywhere in the country. “Trump has at least $ 590 million in debt over the next four years on other Trump Organization properties, more than half of which is personally guaranteed. Some of these properties, like the Washington, DC hotel and the golf resort near Miami, suffered from declining revenues during the pandemic. “We’re one of the most heavily indebted real estate companies in the country relative to our assets. For more articles like this, please visit us at bloomberg.com. Sign up now to stay up to date with the most trusted business news source. © 2021 Bloomberg LP