In Deals Totaling $1B, SL Green Buys and Sells Prime Midtown Manhattan Office Properties

New York City's largest office landlord is taking no prisoners in Midtown Manhattan.

May 11, 2010
By Barbra Murray, Contributing Editor

New York City’s largest office landlord is taking no prisoners in Midtown Manhattan. SL Green Realty Corp. has just struck a deal to acquire 125 Park Avenue for $330 million from Shorenstein Properties L.L.C., but the REIT didn’t stop there. SL Green also agreed to trade its 45 percent ownership stake in 1221 Avenue of the Americas and a 45 percent joint venture ownership interest in the soon-to-be purchased 600 Lexington Avenue (pictured) to Canada Pension Plan Investment Board (CPPIB) for $576 million and $87 million, respectively.

SL Green is taking the 651,000-square-foot 125 Park Avenue, originally known as the Pershing Square Building, off the hands of Shorenstein six years after the San Francisco-based private real estate investment firm acquired the 26-story tower for $225 million. Situated right across from Grand Central Terminal, 125 Park Avenue was developed in 1923, and, courtesy of a strong tenant roster that includes the likes of Meredith Corporation and FGIC Holdings, is presently 99 percent leased. The $330 million SL Green has agreed to pay for the property includes the REIT’s assumption of just over $146 million in debt in the form of a 5.748% interest-only loan scheduled to mature in October 2014.

Buy a little, sell a little. SL Green is letting go of its ownership interest in the 2.5 million-square-foot office property at 1221 Avenue of the Americas. The building has been part of the company’s portfolio since 2003, when it plunked down $450 million for a 45 percent share that had been owned by The McGraw-Hill Cos., an anchor tenant presently occupying 420,000 square feet. Rockefeller Group International Inc., developer of the 50-story high-rise in 1972, will continue to own the remaining 55 percent interest in the asset, and maintain the management and leasing responsibilities when CPPIB steps into SL Green’s shoes as joint venture partner.

SL Green plans to use the proceeds from the sale of 1221 Avenue of the Americas to provide equity for the anticipated acquisition of 125 Park Avenue and the office property it agreed to buy for $193 million last month, 600 Lexington Avenue–45 percent of which the REIT just committed to selling to CPPIB.

Of course, one can’t put the cart before the horse. Before SL Green and CPPIB become partners in the ownership of 600 Lexington, SL Green will have to complete the purchase of the asset from a joint venture led by Hines U.S. Core Office Fund, which has owned the 25-year-old property since acquiring it for $91.6 million in 2004. Today, the 36-story structure is 93.6 percent leased to a list of predominantly boutique tenants occupying full floors.

For CPPIB, by snapping up 45 percent ownership interests in 1221 Avenue of the Americas and 600 Lexington, the fund will be making a two-building, 2.8 million-square-foot entry into the coveted Manhattan Class A office market for a total payment of $663 million.

SL Green’s recently announced acquisitions and dispositions serve as further evidence of the rebound of Manhattan office transaction volume. According to a report by real estate services firm Cushman & Wakefield, during the first quarter, $3.3 billion in investment sales involving deals valued at $10 million and higher transpired, marking a staggering jump of 200 percent from the $1.1 billion in such transactions during the in the first quarter of 2009.

Those industry players that have been keeping cash under their mattresses in anticipation of big-ticket properties hitting the market with low price tags are now eager to take a bite out of the Big Apple; however, with limited assets actually up for sale, the competition is steep.