NEW YORK CITY-It isn’t likely to scale the 2007 heights of the $48-billion office investment sales market here, but 2010 is a decided improvement over last year’s historic low point, experts told a NAIOP New York City audience Tuesday.
The $6.8 billion in sales year to date are on pace to double or even triple the 2009 total of $3.5 billion, moderator Jon Caplan said, and the NAIOP panelists—all of whom have contributed to this year’s tally—shared some of the thinking behind their investment plays. All agreed that raising debt and equity this year is an easier proposition than a year-and-a-half ago.
One of the most active buyers and sellers this year has been SL Green Realty Corp. Among other deals, the office REIT has acquired 600 Lexington Ave. for $193 million and 125 Park Ave.—where Tuesday’s NAIOP event took place—for $330 million, while selling its 45% stake in 1221 Ave. of the Americas for $576 million and, earlier this month, entering a contract to sell 19 W. 44th St. for $123.2 million. The 600 Lex and 125 Park deals represented “two totally different plays,” said SL Green managing director Isaac Zion.
“From our perspective, you have to have a view going forward,” Zion told the NAIOP audience in reference to the 600 Lex buy. “Our view was that things are going to get better” and the company therefore wanted to be among the first ones back into the pool. With 125 Park, the lure was “solid returns and cash flow” as well as a good fit with SL Green’s other properties in the Grand Central submarket.
In May, SL Green said the sale of its 1221 Sixth Ave. stake, to the Canada Pension Plan Investment Board, represented an unlevered IRR of 12%. At the same time, CPPIB also acquired a 45% stake in 600 Lex.
Long Island-based RXR Realty also took on a pair of dissimilar office acquisitions earlier this year. However, both were marked by what president and CFO Michael Maturo called a strategy of “manufacturing” deals by working with the equity.
Rather than buying the 739,000-square-foot office tower at 340 Madison Ave. outright, RXR bought D.E. Shaw’s 49% stake for approximately $279.3 million, while also leading recapitalization efforts. This enabled co-owner Broadway Partners to retain a 51% interest while giving D.E. Shaw the equity it need, Maturo explained.
On a 32-property, 2.1-million-square-foot office portfolio in Woodbury, NY formerly owned by CLK/Houlihan-Parnes, Maturo said “it’s been a six-month process” of working first with the CLK/H-P partnership and then with the special servicer on the portfolio’s existing first mortgage. CLK/H-P had defaulted last year on $30 million of mezzanine debt from RXR. Maturo said RXR brought its property management experience to the table; with about 250 tenants across the Woodbury portfolio, running the properties represented a headache the lender was not interested in incurring, he added.
Savanna Real Estate Fund added approximately 470,000 square feet to its Manhattan office portfolio this year by acquiring the fee simple interest in 104 W. 40th St. and 386 Park Ave. South. Managing director Kevin Chisholm said the lender wanted to avoid a “messy” foreclosure on 104 W. 40th; according to the Wall Street Journal, Savanna bought the $55-million mortgage at a discount from a unit of ING Groep Ltd., later paying former owner Principal Financial Group Inc. $10 million to relinquish control of the property.
On 386 PAS, Savanna entered a joint venture with Monday Properties to recapitalize the property. It plans a repositioning and re-tenanting program at the 260,000-square-foot building.
Caplan, a managing director with Jones Lang LaSalle and part of a four-member capital markets team that recently joined the firm from Cushman & Wakefield, moderated the hour-long event, titled “State of the Office Equity Markets.” In opening remarks, Caplan noted that the number of $100-million-plus office sales in Manhattan has increased from the seven recorded in ’09 to almost 20 YTD.
Want to continue reading?
Become a Free ALM Digital Reader.
Once you are an ALM Digital Member, you’ll receive:
- Breaking commercial real estate news and analysis, on-site and via our newsletters and custom alerts
- Educational webcasts, white papers, and ebooks from industry thought leaders
- Critical coverage of the property casualty insurance and financial advisory markets on our other ALM sites, PropertyCasualty360 and ThinkAdvisor
Already have an account? Sign In Now
*May exclude premium content© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
Paul Bubny
Paul Bubny is managing editor of Real Estate Forum and GlobeSt.com. He has been reporting on business since 1988 and on commercial real estate since 2007. He is based at ALM Real Estate Media Group's offices in New York City.
