The Cost of Borrowing Moves Up
When Metropolitan Real Estate Investors of Los Angeles and its Israeli financial partners agreed in April to buy 885 Third Avenue, a Midtown Manhattan office tower that is known as the Lipstick Building because of its elliptical shape, there seemed to be little doubt about how the deal would be financed.
Wachovia, one of the most active lenders in commercial real estate, had tentatively agreed to finance 90 percent of the deal, with generous terms that were typical for loans in Manhattan and other cities where the prices being paid for office buildings have skyrocketed in recent years.
But Metropolitan’s timing was unfortunate. Just after it entered into contract for the 34-story Lipstick Building, its first foray into New York, the lending market tightened. Wachovia, whose loan offer was nonbinding, wanted new terms with less leverage and a higher interest rate.