Inside First Republic’s office footprint

To shed or not to shed office space? That’s the question JPMorgan must ask itself after buying First Republic Bank.

The answer will affect a number of prominent landlords.

First Republic, a prominent mortgage and multifamily lender that the Federal Deposit Insurance Corporation seized and sold Monday to JPMorgan, leases more than half a million square feet of office space across the country.

Keeping it would give JPMorgan a larger office footprint in New York, Los Angeles and San Francisco. Exiting it would hurt landlords of those buildings and cut the bank’s real estate expenses.

In those cities, First Republic leases 656,000 square feet across five buildings owned by Tishman Speyer, KKR, 601W Companies and CommonWealth Partners. All five have debt bundled into commercial mortgage-backed securities, putting those CMBS investors at risk, according to data from DBRS Morningstar.

Like many commercial mortgages, CMBS loans often require the properties they back to produce enough income to cover their debt service — usually 1.25 times as much. If a tenant leaves and that income dips, that requirement could be breached.

In announcing its purchase of First Republic, JPMorgan said it would spend $2 billion this year to “restructure” the bank. It did not offer details, but restructuring often includes paying lease-termination fees and employee severance.

In New York, JPMorgan is building a skyscraper large even by Manhattan standards at 270 Park Avenue, where it plans to consolidate its office space in the city. That could make First Republic’s New York space superfluous as soon as 2025, when construction of the 2.5-million-square-foot tower is expected to wrap up.

First Republic is the second largest tenant at 410 10th Avenue, a roughly 630,000-square-foot building owned by 601W Companies. First Republic’s lease is for about 212,000 square feet and runs through September 2036. 601W Companies did not respond to a request for comment.

When First Republic signed the lease in 2021, the bank was paying about $17 million per year in gross rent, according to documents associated with a CMBS loan on the property.

First Republic does have an option to terminate the lease, but not until 2030, according to data from Morningstar. To exercise it, First Republic would have to notify 601W Companies 18 months in advance and pay a fee.

In February — before the collapse of Silicon Valley Bank, which triggered a bank run on First Republic — DBRS Morningstar said the 10th Avenue property benefited from “investment-grade tenancy” including First Republic and Amazon.

Further uptown, First Republic Bank leases about 280,000 square feet at Tishman Speyer’s Rockefeller Center — 174,000 square feet at 1230 Sixth Avenue and 106,000 square feet at 10 Rockefeller Plaza, according to Morningstar data. The lease makes up about 4 percent of the entire development, which has a $1.7 billion CMBS loan maturing in 2025.

Tishman Speyer declined to comment. 

In Los Angeles, First Republic occupies 21 percent of 1888 Century Park East — a 500,000-square-foot building in Century City owned by CommonWealth Partners, according to Morningstar. That lease expires in 2030. CommonWealth Partners did not respond to a request for comment. 

At that building, First Republic has increased its space more than 10 times. It moved into the property in 1999, initially taking roughly 5,000 square feet, Morningstar reported.

In Silicon Valley, First Republic has a building named after itself — KKR’s First Republic Center, where the bank leases about 59,000 of the property’s 77,200 square feet, according to Morningstar. KKR declined to comment.

KKR bought that building, at 2100 El Camino Real, for $103.6 million in 2020. First Republic’s lease runs through 2037, according to Morningstar.