SL Green, Vornado Maintain Majority Stake in Recapitalization of 280 Park

Broadway Partners and Investcorp have announced a recapitalization and redevelopment of 280 Park Ave. in Manhattan that retains their majority stake while placing the total capitalization of the Class A asset at an estimated $1.4 billion.

May 18, 2011
By Barbra Murray, Contributing Editor

Two months ago, leading New York City office landlords SL Green Realty Corp. and Vornado Realty Trust formed a joint venture that united their aggregate $400 million mezzanine debt positions at 280 Park Ave. in Manhattan. Now, the partners have announced a recapitalization and redevelopment deal for the 1.2 million square-foot office property with equity partners Broadway Partners and Investcorp that places the total capitalization of the Class A asset at an estimated $1.4 billion.

The transaction has resulted in an ownership structure change that leaves SL Green and Vornado with a majority stake in 280 Park Ave., which consists of a 31-story tower linked to a 43-story building between 48th and 49th Streets. “This is a good investment for both SL Green and Vornado,” John Guinee, managing director with brokerage and investment banking firm Stifel, Nicolaus & Co., told CPE.

The agreement, industry experts contend, could not have been easy to orchestrate. In a document Stifel Nicolaus produced about the recapitalization, Guinee, along with colleagues Erin Aslakson and Andrew Pyke, noted, “We think tensions were likely high as this was renegotiated.”

The Midtown Manhattan property has undergone a few ownership changes over the last five years. In 2006, Boston Properties Inc. sold 280 Park to Istithmar PJSC for $1.2 billion, and the next year, at the height of the market, Istithmar sold it to Investcorp and Broadway Partners in a deal valued at $1.5 billion, according to Investcorp’s midyear fiscal 2008 analysis. SL Green later bought approximately $200 million of the junior mezzanine debt on the asset, and in March of this year, merged debt positions with Vornado.

So it’s been a bit of a wild ride for 280 Park, but it appears that change is good. The office destination’s long-held status as a premier office locale is about to climb a few notches. As per terms of the agreement among SL Green, Vorando, Broadway Partners and Investcorp, the property will be submitted to a thorough redevelopment program that will, among other improvements, bring the infrastructure up to state-of-the-art standards. Roughly $150 million will be invested in repositioning and re-tenanting efforts.

“When there is an investment of this complexity and magnitude on a 64 percent leased asset, the most important valuation metric is stabilized price per square foot,” Guinee told CPE. “What will be the ultimate yield can be very widely based on lease-up and near-term lease rollover.” The outlook appears favorable. “We are very bullish on Midtown Manhattan,” he said.