SL Green sells two properties; adds 100 Park in joint venture

Real Estate Weekly, Dec 15, 1999

SL Green Realty Corp. recently announced it was entering into a contract to form a joint venture to acquire 100 Park Avenue. Simultaneously, the company announced that it has executed contracts to sell two of SL Green's mature side-street properties.

SL Green and Prudential Real Estate Investors (PREI), acting on behalf of PRISA, its flagship commingled fund, have entered into a contract to form a venture which will acquire 100 Park Avenue, a 834,000 square-foot, 36-story property located one block south of Grand Central on Park Avenue between 40th and 41st streets. SL Green will purchase a 49.9 percent managing interest in the venture for $95.8 million, representing an implied overall property value of $192 million.

SL Green's investment philosophy is to acquire under-valued Manhattan office properties and enhance value through repositioning and renovation. Although the property is 97 percent leased, in-place rents at the property average less than $33 per square-foot, which is more than 30 percent below current market rents and represents a significant value-added opportunity for the company.

Based on current in-place leases, SL Green's investment in 100 Park Avenue will have an unleveraged going-in cash yield of approximately 9 percent. SL Green also has certain preferential rights to acquire PRISA's interests in the future, and will be responsible for managing and leasing the property.

In commenting on the agreement, Dave Bradford, managing director of Prudential Real Estate Investors (PREI) and senior portfolio manager for PRISA, said "This joint venture allows us to accomplish several goals, including reducing PRISA's exposure to large single assets and office holdings while retaining an investment in the strong Midtown Manhattan market. In addition, we are fortunate to be teaming up with a savvy partner in SL Green, whose understanding of the New York City office market is unsurpassed."

Simultaneously with this acquisition, SL Green announced that it has entered into contracts for the sale of two of its smaller side-street properties.

The first is located at 36 West 44th Street. Also known as the Bar Building, the contract purchase price for the property is $31.5 million. The property is approximately 178,000 square feet, and the purchase price represents a sale value of $177 per square-foot.

The second property, 29 West 35th Street, is 78,000 square feet and has a contract purchase price of $11.7 million, or $150 per square-foot.

Both sales are expected to close in the first quarter of 2000. These two transactions will result in a reduction of the company's secured debt of $19.6 million.

Stephen L. Green, chairman and CEO of SL Green, said "This acquisition and these sales demonstrate our execution of our business plan strategy of selling those non-core assets which the company has bought and repositioned, and redeploying the equity into assets that can more significantly contribute to our long-term earnings growth."

As a result of the acquisition and sales, SL Green's portfolio will consist of 23 properties encompassing approximately 9.15 million rentable square feet, ranking SL Green among the largest owners of commercial real estate in Manhattan.