Office sales rise sharply in Lower Manhattan

Real Estate Alert, April 14, 2004

After grinding to a halt following the terrorist attacks, the office-sales market in Lower Manhattan has reawakened.

Over the past few months, the Wall Street district has been among the busiest markets in the country. Buyers have stepped up for at least nine large properties since the beginning of the year, according to Real Estate Alert's Deal Database, which tracks deals of $25 million or more (see "Regional Spotlight" on page 11). The $1.4 billion of deals since Jan. 1 is almost triple the total for all of last year, when six properties changed hands for a combined $568 million.

A good chunk of the latest activity involves properties slated for residential conversions, including Nathan Berman's pending $155 million acquisition of the 730,000-square-foot building at 20 Exchange Place and his recently closed $50.5 million acquisition of the 303,000-sf building at 67 Wall Street. Heading to market now is another property geared toward the redevelopment crowd. Jack Resnick & Sons is interviewing brokers for the listing on the 567,000-sf building at 20 Pine Street. The building, known as Two Chase Manhattan Plaza, could fetch $200/sf, or $113 million. Eastdil Realty, CB Richard Ellis, Cushman & Wakefield and Studley are among those competing for the assignment.

The 35-story building, on the corner of Nassau Street, is fully occupied by J.P. Morgan Chase. But the lease expires in 2006, and the bank is not likely to renew. The expectation is that a buyer would reposition the property for use as high-end apartments, residential condos or a hotel. The building, constructed in 1928, neighbors the 2.2 million-sf One Chase Manhattan Plaza, at 26 Nassau Street, which is owned by J.P. Morgan.

The conversion projects should help an already improving leasing market. The Class-A occupancy rate has climbed to 86.6% from 84.7% a year ago, and may rise more as additional office buildings are taken out of circulation.

But sales activity has not been limited to redevelopment specialists. For example, RFR Holding, a New York firm backed by German money, reached agreement last week to buy the adjacent buildings at 95-99 Wall Street from German fund operator DEGI, which stands for Deutsche Gesellschaft fur Immobilienfonds. The deal is valued at roughly $180 million. DEGI acquired the buildings in 1999 from a partnership between Taconic Investment Partners and Blackacre Capital for $148 million.

The buzz this week was that RFR would flip 95 Wall, possibly to local investor Eric Hadar.

The 486,000-sf building at 95 Wall is fully occupied by J.P. Morgan, Credit Lyonnais and First Investors. The 100,000-sf building at 99 Wall is about 68% occupied, with asking rents of up to $29/sf.

That deal comes on the heels of two large closings. DIFA (Deutsche Immobilienfonds) paid $460 million for the 1.2 million-sf building at 140 Broadway, while Larry Silverstein, backed by institutional clients of CB Richard Ellis Investors, paid $270 million for a 90% stake in the 1.8 million-sf building at 120 Broadway.

Also, Broad Street Partners, a new entity headed by longtime downtown investor Raymond Chalme, reached agreement earlier this month to pay $130 million for the 661,000-sf building at 61 Broadway.