Specifically, 750 Third will be purchased by SL Green as a wholly-owned asset for $255 million, while 485 Lexington will be acquired in a joint venture with the City Investment Fund LP for $225 million. SL Green expects to own approximately 37.5% of the equity interests in that property.
At closing, TIAA-CREF, will enter into an operating lease for the entire building at 750 Third. At the expiration of that agreement in December 2005, the building will be approximately 25% vacant. In January, Fairchild Publications inked a 17-year deal to move operations to 234,000-sf at the site. Built in 1958 at the corner of 47th Street and Third Avenue, the 34-story property comprises 761,057 net leaseable sf. Other tenants include First Commercial Bank, Eisner LLP and Buckingham Research Group.
At closing of 485 Lexington, TIAA-CREF will enter into an operating lease for the entire building as well. Upon expiration of the arrangement also in December 2005, it is anticipated that TIAA-CREF will vacate all of the space it occupies--approximately 870,000 sf—and be headquartered at another site it owns, the 645,00-sf 730 Third Ave.
The acquisition of 750 Third will initially be funded by proceeds from SL Green's unsecured line of credit, which currently has no outstanding balance. The REIT expects to pay down a majority of the line of credit capacity used to acquire the property by year-end with the proceeds of identified asset sales. Proceeds will then be reinvested in 750 Third to effectuate a "reverse 1031 exchange." With regard to 485 Lexington, the JV has arranged for a loan facility to fund 75% of the acquisition and anticipated retenanting costs.
"It was a very competitive process," C&W's Baxter tells GlobeSt.com. "At the end of the day, there were only a number of buyers at the price Teacher's was seeking." He adds that SL Green came out on top due to its other ownerships in Midtown and an ability to close a transaction quickly.SL Green's president and CEO Marc Holliday, the company's president and CEO says the acquisition of 750 Third Ave. allows the REIT to convert certain of non-core properties into a core asset with embedded value and rental growth at an attractive price per sf. "Additionally, we believe this is the right time in New York City's economic cycle to acquire 485 Lexington and 750 Third Ave., which will represent the largest blocks of contiguous vacant space in a prime Midtown location."
Earlier this week, SL Green took a $425 million first mortgage on the 1.8 million-sf 1515 Broadway. The REIT acquired the 56-story, class-A office, also for $480 million in 2002. The transaction for 750 Third and 495 Lexington is expected to close in the third quarter with both being acquired separately by two SL Green-controlled entities.
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