Let’s nerd out for a little while, shall we?
Dan Gilbert’s Bedrock LLC real estate company has snagged the largest-ever commercial mortgage-backed securities loan in the city’s history, totaling $430 million, to refinance 14 of the billionaire’s Detroit properties in and around downtown.
The previous largest CMBS loan was the $125 million for the former Compuware Corp. headquarters building, now known as One Campus Martius, that Gilbert bought along with what was then Meridian Health for $142 million in 2014.
The new seven-year loan, which matures in January 2029, is revealed in a document obtained from the Kroll Bond Rating Agency LLC on Monday that says the portfolio has seven office buildings totaling 2.5 million square feet, five parking decks with 5,036 parking spaces and a pair of multifamily properties totaling 53 units. The entire portfolio is about 2.7 million square feet.
It’s important to take a step back and consider the following: What is believed to be the largest-ever CMBS loan in city history was issued during a global pandemic during which Detroit and the region’s office stock — the primary anchor of the refinanced portfolio —still remains very much in flux, with companies continuing to allow many of their workers to work from home.
That, in turn, impacts revenue from parking decks, the second largest anchor of the portfolio refi.
The timing and amount speak to the confidence the lenders, J.P. Morgan Chase and Starwood Mortgage Capital.
In the office buildings, Gilbert’s Rocket Cos. online mortgage giant accounts for 40.3 percent of base rent with lease expiration in July 2028 while Amrock Inc. — his Detroit-based title and property valuation company — accounts for 17.1 percent with lease expiration in January 2032. The document says that Kroll views those properties as riskier since the two largest tenants are affiliated the borrower.
I emailed Bedrock on Tuesday morning seeking comment or an interview for this story.
The office buildings are the First National Building (800,000 square feet), the Qube/Chase Tower (522,700 square feet), Chrysler House (343,500 square feet), 1001 Woodward (319,000 square feet), One Woodward (370,300 square feet), and 1505 Woodward and 1515 Woodward (141,700 square feet combined); the parking decks are the Z Garage (1,351 spaces), Two Detroit Garage (1,106 spaces), 1001 Brush Street (1,309 spaces), 419 Fort St. garage (637 spaces) and 1401 First Street (633 spaces); and the multifamily properties are The Assembly and the Vinton Building, according to the Kroll document.
The document also gives us a peak under the hood of the various office buildings that we otherwise might not get, including how much rent they generate from key tenants. For example, Rocket accounts for $23.6 million yearly in rent to the buildings, and Amrock accounts for nearly $10 million. The Detroit-based Honigman Miller Schwartz and Cohn LLP law firm generates about $3 million in annual rent, while LinkedIn Corp. pays about $2.35 million, the document says.
Overall, the portfolio generated $47.2 million in net cash flow in 2019, $54.1 million in 2020 and through the first nine months of 2021, $55.6 million, the document says.
The $430 million loan will go toward refinancing $331.1 million in debt, paying loan closing costs, fund reserves and return $83.2 million in equity to Bedrock.
Southfield-based Bernard Financial Group originated the loan and will be the servicer. Founder and President Dennis Bernard confirmed his company’s involvement and said it demonstrates the strength and belief by national lenders and investors in Detroit’s commercial real estate market, but deferred further comment to Bedrock.
The portfolio has an appraised value of $724.3 million, according to the document. Gilbert spent $191.2 million acquiring the properties, the document says. The total basis is $656.1 million, the document says, generally meaning that Bedrock has spent some $464.9 million on the properties since buying them.