SL Green Sells 49.9% Stake in 245 Park Avenue for $2B Valuation

SL Green Realty announced Monday it has sold a 49.9% stake in 245 Park Avenue—a 44-story trophy tower in Midtown Manhattan that the REIT acquired in a bankruptcy proceeding last year—to Mori Trust for a gross asset valuation of $2B.

The largest office deal of the year to date in NYC comes on the heels of a financial analysis in Seeking Alpha last week which questioned SL Green’s long-term “survivability,” saying the company—the largest NYC office landlord—is facing “a risk of insolvency” due to rising interest rates and crashing office building valuations.

In addition to quelling talk of insolvency from stock market analysts, SL Green’s deal with Tokyo-based Mori—marking Mori’s first investment in NYC—also provides an important benchmark for the enduring value of trophy office towers in Manhattan as a large number of older buildings are adjusting valuations.

“The formation of this new partnership with Mori Trust reflects the continuing allure of investing in trophy midtown NY assets and the resilience of the Park Avenue corridor as New York’s most desirable office market,” said Harrison Sitomer, chief investment officer of SL Green, in a statement.

However, an analysis by Green Street suggests that the impact for broader New York office values may be “limited.” It cited the property’s quality and location as well as the buyer benefiting from assumable, below market rate debt financing of a fixed 4.2% through 2027, “which may have increased pricing by 5%-10% in light of the challenging office financing environment,” it said.

In September, SL Green acquired the 1.8M SF tower, which sits between 46^th and 47^th Street near Grand Central Station, in a bankruptcy proceeding from HNA Group in which the REIT assumed $1.77B in senior and mezzanine loans on the property on the original terms. SL Green also collected a $185M arbitration award from HNA.

HNA, a conglomerate based in China, acquired 245 Park Avenue in 2017 for $2.2B. The company had difficulty keeping up with its $1.7B acquisition loan after the building’s anchor tenant—Major League Baseball—moved to Sixth Avenue.

SL Green had a preferred equity investment in the property, which put it into the pole position to bid for the property after HNA’s 245 Park affiliate declared bankruptcy in 2021.

Mori Trust has agreed to assume $500M of the debt on 245 Park, which carries a fixed interest rate of 4.22% and matures in June 2027.

SL Green has retained Kohn Pedersen Fox Associates to reposition 245 Park Avenue with a redesign that will include a new Park Avenue podium façade, new windows, and upgrades of the Park Avenue and Lexington Avenue lobbies and plaza.

Shortly before it acquired 245 Park Avenue, SL Green sold a 414,317-square-foot commercial condominium at 885 Third Avenue—a.k.a. the Lipstick Building—to Memorial Sloan Kettering Cancer Center for approximately $300 million.

The 34-story, high-profile building, which earned its nickname from its distinctive oval shape and pink marble façade, was once the headquarters for Ponzi swindler Bernie Madoff’s investment firm.

Earlier this month, SL Green said it is maintaining the momentum of a healthy leasing velocity that has seen the REIT ink more than 800K SF of office leases in Manhattan since the beginning of the year.

The company announced it signed nearly 300K SF of leases in 31 deals in April and May, including two deals at 245 Park Avenue.

Swedish private equity firm EQT Partners signed a new 15-year lease encompassing 76K SF at 245 Park Avenue—the entire 33^rd and 34^th floors of the building. Angelo Gordon signed a 10,636 SF expansion lease at 245 Park Avenue, increasing its footprint in the building to 149,305 SF.

In April, SL Green and an institutional investor advised by JPMorgan Global Alternatives have completed a $500M refinancing of 919 Third Avenue, its 1.5M SF Class A office tower in Midtown.

The NYC office giant secured a new $500M mortgage loan with a three-year term and two one-year extensions from a bevy of banks led by Aareal Capital and Credit Agricole Corporate and Investment Bank.

Despite the travails of downtown office sectors in the US, Mori Trust has shown an appetite for acquiring trophy properties. In September, Mori acquired the former NPR headquarters building in Washington DC, for $531M, the priciest office sale in DC since 2020.