The people who own Philadelphia's biggest building are glad they locked in their loan rate in 2006, when banks were giving money away.
Citigroup Inc. lent $324 million at 6.15 percent interest last month to Philadelphia's Liberty Property Trust and its German backer, Commerzbank AG, to finance the brand-new Comcast Center on Arch Street.
"We did all the things we had to do, and now Citigroup has honored their commitment, even though it's a very different environment," said George Alburger, Liberty's chief financial officer.
They couldn't get those terms today, said Babak "Bob" Zenouzi, portfolio manager for real estate stocks at Delaware Investments on Market Street.
A similar deal would price between 7.25 percent and 8.25 percent today, adding tens of millions to the cost - if Liberty could find banks willing to fund it, according to people familiar with the financial arrangement.
That's because the markup that banks charge for big property loans has zoomed from less than one percentage point over benchmark Treasury yields to more than 3 percentage points over the last two years.
Put another way, lenders' risk has grown faster than the Federal Reserve has been able to cut interest rates. So prices on these big deals are up, not down.
Like other Wall Street lenders, Citigroup packs commercial mortgage loans together and resells them as collateralized mortgage-backed securities.
In 2006, collateralized mortgage-backed securities were the raw material for complex investments that Wall Street loved. Banks competed to make big-ticket loans, cutting prices so they could make bigger profits repackaging and reselling them to hedge funds and private investors.
But now, with investors scared by the credit crunch that started with the rise in residential-loan foreclosures last year, demand for collateralized mortgage-backed securities is down two-thirds. Lenders cannot sell loans so easily. They have to be prepared to hold on to them and bear the risk. And they have had to charge more, Zenouzi said.
Citi still plans to securitize the Comcast Center loan, said Citi spokeswoman Danielle Romero-Apsilos.
The banks' profit on turning the loan will be less than it looked like back in 2006.
By locking in rates, Liberty and Commerzbank and their tenant, Comcast, enjoy the better prices of times past.
Philadelphia developer David Grasso says Société Générale, the giant French bank, has agreed to serve as lead lender for Grasso Holdings' proposed 1.2-million-square-foot, 46-story, multiuse tower at 16th and Vine Streets.
Next step: to bring other lenders into the $260 million first mortgage loan. "Within the next two weeks roughly, they're going to begin the syndication process," Grasso said Friday. After that, "we anticipate closing the loan in 45 days."
New dealer at old card house:
Buccini/Pollin Group, Wilmington, has bought former credit card giant MBNA Corp.'s old headquarters on Delaware 273 in Ogletown, south of Wilmington on I-95. Managing partner Christopher Buccini said his firm would spend $5 million turning the 453,000-square-foot complex into the Iron Hill Corporate Center for corporate tenants.
Buccini paid "a little over $28 million," said Stephen C. Marzullo, senior vice president at CB Richard Ellis Capital Markets in Philadelphia, who handled the sale. "We had a dozen offers, and bidders from up and down the East Coast." Now CBRE's Delaware office is looking for tenants.
The complex was built in the 1980s and 1990s by MBNA founder Charles M. Cawley at a failed shopping center. MBNA kept Ogletown as a call center after building its downtown Wilmington headquarters in the 1990s.
Bank of America Corp. moved out of most of the Ogletown complex and part of MBNA's six-block Wilmington compound after buying MBNA and ending many of its 10,000 local jobs two years ago.
The northern Delaware commercial real estate market has been depressed by cuts at BofA and the DuPont Co., CB Richard Ellis said in a report last week.
MBNA named the complex for the late NHL star goalie Roger Crozier, the company's facilities manager during the 1990s. Buccini is renaming it for a nearby Revolutionary War mining site, a landmark on the flat Delmarva peninsula.