USAA RealCo, Waterman Take 2 Manhattan Properties

USAA Real Estate Co. has teamed up with Waterman Interests on a purchase in one of Manhattan’s highest growth submarkets.
Len ODonnell

Len O’Donnell, USAA Real Estate Co.

USAA Real Estate Co., based in San Antonio, teamed up with New York’s Waterman Interests to purchase two office properties totaling nearly 210,000 square feet in one of Manhattan’s highest growth submarkets, Times Square South near Penn Station.

The two firms did not release the price they paid for the portfolio, known as the Midwest West Collection, that is comprised of 234 W. 39th St., a 10-story, 91,466-square-foot property built in 1921, and 142 W. 36th St., a 17-story, 118,338-square-foot building erected in 1922. Crain’s New York Business reported the partners paid about $118 million for the properties owned by Herald Square Properties of New York and Davis Cos. of Boston.

The office buildings are located between Broadway and 8th Avenue near Penn Station, the Times Square and Herald Square subway stops and Port Authority Bus Terminal. The new owners are betting that the nearby Hudson Yards mega-development of office, residential, restaurant and retail space that is under construction will drive property demand and values through its own market and the surrounding submarkets.

“We are very pleased to be completing our first venture with Waterman Interests. I have been very impressed with Tod (Philip ‘Tod’ Waterman III) and his organization for some time now and together I’m confident we will add significant value to these assets,” Len O’Donnell, president & CEO of USAA Real Estate Co., said in a joint news release. “With its proximity to Midtown South and the new Hudson Yards development, the Times Square South submarket is experiencing a renaissance and we believe tenant demand will be quite strong.”

The area, which is just north of the hot Midtown South submarket, goes by a variety of names, including Penn Plaza, Midtown West and Times Square South and the former Garment District. The area is attracting many fast-growing technology, advertising, media and information technology (TAMI) companies and 142 W. 36th St. already has a number of TAMI tenants, according to releases from Herald Square Properties. One of the first tenants the previous owners signed soon after they acquired the building was View the Space, a commercial real estate software company that took the 12th floor with more than 7,000 square feet in 2014. Quarto Publishing Group USA leased the fourth floor, about 7,900 square feet, earlier this year. Other tenants there include Flashtalking and Elite SEM.

A different approach was used for leasing at 234 W. 39th St., where the focus was on retaining the traditional fashion tenants and attracting new ones.

“The buildings are presently fully leased at rents that are below market, thus offering significant upside potential in one of Manhattan’s hottest neighborhoods,” Tom Bermingham, managing director of USAA Real Estate Co.’s New York office, said in a prepared statement.

Waterman, founder and managing member of Waterman Interests, said in the joint release that Savitt Partners, L.L.C., led by Robert Savitt, will be spearheading the execution of the leasing strategy for the portfolio.

“We are thrilled to have the opportunity to form a partnership with USAA Real Estate Co. on the Midtown West assets and know this transaction will allow us to utilize all of our team’s core competencies to reposition this portfolio and deliver exceptional results for our investors, USAA RealCo, and the tenants in these buildings.”

Waterman is a privately-held and self-managed real estate investment and operating company specializing in the ownership, acquisition, leasing, financing, management and development of office, retail and mixed-use properties in New York City.

USAA RealCo is a subsidiary of USAA, a leading financial services company serving military families. The subsidiary has approximately $12 billion in assets under management in a portfolio that consists of office, industrial, multi-family, retail, hotels and investments in real estate operating companies. It provides co-investment, acquisition, build-to-suit and development services for corporate and institutional investors.