NY Times to Put a Dent in Debt with $225M Sale-Leaseback of Midtown Headquarters

With the real estate market in a slump, property owners in sale-leaseback deals aren’t walking away with as much money as they would have just a few years ago, but they can still get a relatively sizeable chunk of change, just as the New York Times Co. will in its arrangement with investment management firm W. P. Carey & Co. The newspaper concern just entered into a sale-leaseback agreement involving the 750,000 square feet of office space it owns and occupies in the 1.5 million-square-foot Midtown Manhattan building at 620 Eighth Ave. For W. P. Carey, the deal means adding a stabilized two-year-old trophy asset to its portfolio; for the New York Times, it means pocketing $225 million while staying put in its digs. “The opportunity to acquire an asset of this quality at this pricing level is clearly a sign of the times,” a W. P. Carey spokesperson told CPN. “It is certainly driven by the fact that sale-leaseback is still an attractive option when other forms of financing are not available.” The Times will use the proceeds from the transaction to pay down long-term debt. As described in its annual report, the sale-leaseback deal is just one of a handful of steps the company–plagued by plummeting advertising revenue and the challenge of refinancing debt–is taking to improve liquidity. Real estate services firm Cushman & Wakefield Inc. advised the Times on the transaction with W. P. Carey. Designed by renowned Italian architect Renzo Piano, the headquarters building (pictured) was developed in 2007 at a cost of approximately $800 million. The Times owns floors 2 through 27 of the 52-story property, while Forest City Ratner Cos. owns about 700,000 square feet of office space on floors 29 through 52, in addition to the 21,000 square feet of ground level retail space. The companies co-own the 28th and 51st floors, and the lobby. As per terms of the Times’ agreement with W. P. Carey, which will acquire the property in conjunction with its CPA(R):16-Global and CPA(R):17-Global publicly held non-traded REIT affiliates, the company will continue to occupy its current offices under a new 15-year lease, paying $24 million in rent the first year. However, if the Times decides it wants to return to being master of its domain once again, the company has the option to repurchase the space for $250 million in the 10th year of the lease. “The way to look at this transaction is the pricing and initial rental rate and repurchase option all work together,” the spokesperson said. “With the repurchase option we gave up some future potential appreciation in return for protection on the downside and very attractive current initial yield.” Even with today’s discounted price tags, big-ticket office transactions are few and far between, so the announcement of the Times-W. P. Carey agreement just days after CB Richard Ellis Investors–in a steal of a deal–spent $355 million for a 75 percent stake in the 1.2 million-square-foot high-rise at 1540 Broadway is turning heads.