SL Green Sells Stake in Manhattan Trophy Tower

PGIM Real Estate takes a 40 percent stake in a 2.3 million-square-foot Art Deco landmark.

Eleven Madison Ave., New York

One year after acquiring Eleven Madison Ave. in Manhattan, SL Green Realty Corp. has sold a 40 percent interest in the 2.3 million-square-foot trophy office property to PGIM Real Estate, formerly Prudential Real Estate Investors. The transaction places a value of $2.6 billion on the building, a figure encompassing the costs associated with lease-related upgrades.

SL Green’s disposition of a portion of its ownership of Eleven Madison comes as no surprise; the REIT said it would happen.

“I said on the call right after we purchased it that it was one particular asset that we might JV, re-JV after purchase. If we do that, there is no tax impediment to a joint venture. It’s set up as a TIC, so it’s relatively easy to joint venture that asset and still maintain the tax protection that we structured in the balance of the investment, and it’s the kind of investment that has attraction in good markets and bad,” Marc Holliday, CEO of SL Green, said during the REIT’s fourth quarter 2015 earnings conference call on Jan. 28.

SL Green had closed its purchase of Eleven Madison in September 2015, acquiring the Midtown South office asset from a joint venture of The Sapir Organization and CIM Group for roughly $2.6 billion, including the improvements stipulated in the lease.  The 29-story Art Deco tower, designed by Harvey Wiley Corbett and D. Everett Waid in 1929 for Metropolitan Life Insurance Co., had just emerged from a two-year repositioning.

The transformation proved successful enough to attract the likes of Sony Corp. of America, Yelp Inc. and William Morris Endeavor, which signed long-term leases for digs totaling 525,000 square feet, 150,000 square feet and 70,000 square feet, respectively. Credit Suisse renewed its lease of 1.1 million square feet in 2014.

“PGIM Real Estate shares our vision for Eleven Madison Avenue, a truly premier asset, and we are delighted to continue our long-standing, mutually beneficial relationship with this latest venture together,” Isaac Zion, SL Green’s co-chief investment officer, said in a statement. SL Green and PGIM formed a joint venture in 2014 for the co-ownership of office and retail condo units totaling 347,000 square feet at Tower 46 in Midtown.

Under the terms of the deal, PGIM has an option to increase its stake in the block-long building by 9 percent within one year. However, PGIM could end up with no interest in the asset at all. The partners hope to secure a modification of the property’s mortgage, but should that goal not be realized within six months after the deal’s closing, SL Green may repurchase PGIM’s interest.

SL Green was represented in the transaction by Darcy Stacom and William Shanahan, both vice chairmen with CBRE Group Inc. SL Green expects to collect $480 million of cash proceeds from the Eleven Madison deal, which will be applied toward the reduction of debt, as well as investment pursuits.