CMBS tied to Trump son-in-law sails through market

By Joy Wiltermuth

NEW YORK (IFR) – Investors on Friday snapped up a new US$1.11bn commercial mortgage bond backed by a highly leveraged loan to refinance a New York property owned by President Donald Trump’s son-in-law.

The US$100m loan, part of a big refinance package on a Times Square building owned by Jared Kushner’s real-estate company, is 10% more than the property’s value, according to Kroll Bond Rating Agency.

Although that 110% loan-to-value ratio is relatively high, it was not enough to deter investors, whose strong demand made the trade a success.

Lead banks Deutsche Bank and Citigroup were able to price the deal cheaply, with 9.82-year Triple A class clearing the market at swaps plus 90bp.

Similar bonds priced at 115bp in December, according to IFR data. Both banks declined to comment.

SKY HIGH DEBT

The loan on 229 West 43rd Street, an 18-story property that includes a popular bowling alley, was the biggest in the collateral underpinning the new bond.

Bond documents seen by IFR showed that Deutsche Bank originated much of the property’s US$370m refinancing package – which includes the loan – in October before Trump’s election.

On January 3, Kushner notified lenders on the property that he intended to resign from his post as manager of the building on January 19, according to the documents.

The mortgage seller told Fitch Ratings that his brother Joshua Kushner would manage the property instead, as part of the credit agency’s vetting of the bond deal.

“Loan documents will be amended to provide that both Jared Kushner and (his brother) Joshua Kushner will be guarantors under the non-recourse carve-out guaranty and will individually and collectively constitute key principals for purposes of such documents,” Fitch Ratings said in a note.

“However, such proposal is not final and may be subject to further change.”

A call to Kushner Companies for comment was not immediately returned.

Kroll assigned the Kushner loan part of the bond a 110.3% loan-to-value ratio, noting that the borrower only pays interest during the full term of the loan and is not required to pay down principal.

Interest-only loans are viewed as more likely to default because the entire balance of the loan comes due in one fell swoop at maturity.

Fitch meanwhile calculated the LTV ratio at 129.6% and Moody’s Investors Service gave it 127.9%.

Alarming levels of leverage have become commonplace in CMBS over the past few years.

Last year, however, the average conduit pool’s LTV dipped from record highs to 113%, according to Moody’s.

(Reporting by Joy Wiltermuth; Editing by Marc Carnegie and Shankar Ramakrishnan)