"One Court Square's attractive price per square foot offers the potential for material asset value appreciation as the surrounding market continues to develop," says Scott Rechler, Reckson's president and chief executive officer. "It is our intention to capitalize on this acquisition to pursue additional value-added opportunities in the Long Island City submarket." Tod Waterman, executive vice president and managing director of Reckson's New York City division, says the acquisition complements its 90-property, 17.7-million-sf portfolio.
Citibank plans to develop a 475,000-sf, $200-million office expansion adjacent to One Court Square. Reckson officials believe the Long Island City submarket will benefit from the strength of Midtown Manhattan's class A office market, the continuing trend of regional decentralization in the New York Tri-State area and the significant infrastructure and zoning upgrades planned for the area.
In 2001, the New York City Department of City Planning identified central Long Island City as a growth area with significant potential for office, retail and residential development and the city council adopted the initiative to rezone 37 centrally located blocks in the area. The zoning was expected to facilitate commercial development at increased densities as well as allow new residences to mix with commercial and light industrial businesses.
In another large Long Island City transaction, New York Blood Center inked a long-term lease for 76,000 sf at 45-01 Vernon Blvd., John Maltz, president. and Gary R. Blum, director of conversion development at Greiner-Maltz, the brokers who represented the ownership of NYBC, say the deal will not only bring jobs to the neighborhood, but validates the area as a prime commercial destination at a time when most properties are looked upon solely for their residential conversion value. NYBC first inspected the property in the summer of 2004 through their exclusive broker, CB Richard Ellis. Negotiations continued through to mid-April, due in part to the detailed requirements of NYBC.
Gayle Baron, president of the Long Island City Business Development Corp., says the deals confirm Long Island City's desirability as a commercial marketplace, both short and long term. "Moreover as the job base grows, and support services increase, LIC's potential as the city's fourth great business hub will be realized. Currently commercial properties are well priced given the vitality of the area, including residential development, strong building stock, proximity to Midtown and mass transit assets."
Reckson expects to generate an initial unleveraged cash flow yield of approximately 6.5% and a GAAP NOI yield of approximately 6.8% on the total anticipated investment, while the net lease is in effect. The Citibank lease contains partial cancellation options effective during years six and seven for up to 20% of the leased space and in years nine and 10 for up to an additional 20% of the leased space, subject to notice and penalty. Closing is expected sometime this month. To facilitate the transaction, Reckson has obtained a $470-million unsecured bridge loan facility.
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