Billion-dollar refi reveals what tenants pay at 601 Lex

Beneath a $1 billion loan at a landmarked Midtown office building that rests on stilts, a major office tenant is opting for newer space.

Ken Griffin’s hedge fund Citadel will leave behind 144,000 square feet of office space at 601 Lexington Avenue when its lease expires in August, denting the 1.7 million-square-foot building’s revenue by more than nine percent, according to credit ratings agency DBRS Morningstar.

But despite an uncertain future for Manhattan’s office towers, investors in the market for commercial mortgage-backed securities, or CMBS, recently saw fit to loan $1 billion to the 59-story building’s owners, Boston Properties and the Norwegian oil fund.

Boston Properties and Norges Bank Investment Management, which invests the surplus proceeds from Norway’s petroleum industry, will refill their tanks with a combined $368.5 million from the cash-out refinance.

Documents related to the debt package provide an inside look at the building’s finances.

The building was 96.3 percent occupied as of November 1st, and major legal and financial tenants — including Citibank, Blackstone and the law firms Kirkland & Ellis and Freshfields — anchor most of its space.

New York University will lease the six-story office structure at the tower’s base — a 220,000-square-foot “building within a building” begun in 2016 and completed for $283 million — to house its Langone Medical School for a term of 30 years.

A restaurant space added as part of the renovations has also signed its first new lease since the onset of the pandemic, according to DBRS Morningstar.

In the 12 months ending October 2021, the building recorded $89.5 million of operating income on $155 million in revenue. The average remaining lease term at the property is 15.2 years and 39.5 percent of its space will rollover within the 10-year term of the CMBS loan.

Citadel forecast its move from 601 Lexington in 2019 when it added 124,000 square feet to its lease at 425 Park Avenue, L&L Holding Company’s $1 billion office development, for a total occupancy of 335,000 square feet.

Designed by Hugh Stubbins & Associates and Emery Roth & Sons, 601 Lexington Avenue was built in 1977 and became the city’s youngest landmarked building in 2016.

A year after it was built, an engineering student at Princeton reportedly rescued its structural integrity, which relies on four large stilts, by demonstrating to its designers how a strong storm could topple the tower. Structural reinforcements were subsequently added.