German Fund Near Deal to Buy 140 Broadway

Real Estate Alert, Nov 12, 2003

In what would be the largest deal in Lower Manhattan in two years, a fund operated by Deutsche Immobilienfonds is close to an agreement to buy the office building at 140 Broadway for about $460 million.

The German fund, DIFA-Grund, is in talks to buy the 1.2 million-square-foot property from Morgan Stanley Real Estate Fund III. DIFA could go formally under contract within two weeks, according to brokers not involved in the transaction. Morgan Stanley and Jones Lang LaSalle are handling the offering.

Silverstein Properties, the building's manager, is entitled to a performance fee if the Morgan Stanley fund's average annual return on the investment exceeds 20%. Silverstein is expected to continue managing the property after a sale. It is not clear if the company is seeking an equity stake as part of the DIFA deal.

The transaction would be the largest in Lower Manhattan since Deutsche Bank bought the 1.6 million-sf building at 60 Wall Street from J.P. Morgan Chase for $612 million in November 2001. That deal was arranged before the September 2001 attack on the World Trade Center brought the downtown sales market to a grinding halt.

The market has gradually picked up steam. This year, $1.2 billion of large buildings have sold or are under negotiation in the Wall Street area. Meanwhile, the occupancy rate for Class-A buildings downtown rose to 87.1% at Sept. 30 from 85.7% a year earlier.

The 52-story tower at 140 Broadway was constructed in 1967. Morgan Stanley bought it in 1998 from the Harry Helmsley Estate for $191 million and then renovated the property. The vacancy rate stands at 8%, with another 58,000 sf, or 5%, available for sublease. Asking rents range up to $45/sf. The tenants include law firm Brown Brothers Harriman, which is leasing 430,000 sf through 2021. Atlantic Mutual Insurance and YMCA Retirement Fund also have long-term leases on two floors apiece.

DIFA, an open-end fund based in Hamburg, traditionally invested in Washington and Atlanta, but at the beginning of this year it expanded its focus to Class-A office buildings in six downtown markets, including New York. It targets buildings with a minimum initial annual yield of 7.5%.