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NEW YORK CITY-Gramercy Capital Corp. has closed its $1-billion commercial real estate collateralized debt obligation, Gramercy Real Estate CDO 2006-1 (CDO II). The locally based firm will put the majority of proceeds from the issuance of CDO II to retire outstanding borrowings under existing secured purchase agreements, with the remainder funding additional investments.

According to Gramercy, CDO II securities consist of $903.75 million of AAA through BBB- bonds that were purchased by institutional investors, and an additional $38.75 million of non-investment grade bonds and $57.5 million of preferred equity and equity, all of which were retained by Gramercy. At issuance, the weighted-average interest rate of the investment grade securities was three-month Libor plus 36.95 basis points, excluding transaction costs, the firm adds. Bond issuances by CDO II pay interest in October, January, April and July.

CDO II comes on the heels of the closing of CDO I, which closed in July 2005. Gramercy used the majority of those proceeds to repay substantially all of its outstanding debt in its warehouse credit facilities. The rest will be used to fund additional investments, as GlobeSt.com previously reported.

“Our second CDO issuance in 13 months leaves Gramercy with approximately $2 billion of highly flexible, cost-efficient term financing which improves Gramercy’s ability to directly originate a wide variety of investments, and enhances Gramercy’s leverage returns on equity,” says High F. Hall, COO, in a statement.

CDO II matures in 2041, and provides for a five-year reinvestment period when Gramercy can utilize the proceeds of loan repayments to finance new investments. More than 80% of the debt investments contributed to CDO II by Gramercy were first mortgage loans secured by transitional and stabilized commercial properties, with the remaining interests in first mortgage loans, mezzanine loans and preferred equity investments. Approximately two-thirds of the debt investments initially included in CDO II were directly originated by Gramercy.

The aggregate outstanding principal balance and book value of the initial debt investments included in the trust were $819.7 million and $813.7 million, respectively. Under the terms of the indenture governing CDO II, Gramercy has a ramp-up period of 270 days from closing during which it can contribute up to $180.3 million of additional assets, according to the firm.

GKK Manager LLC, which is the external advisor to Gramercy Capital Corp., will serve as collateral manager for the CDO. GKK Manager LLC is a majority-owned subsidiary of SL Green Realty Corp. The joint book-runners, co-lead managers and co-structuring agents were Wachovia Capital Markets LLC, and Goldman, Sachs & Co. The co-managers were Citigroup Global Markets, Inc., Credit Suisse Securities (USA) LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, and WestLB, AG.

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