Bertelsmann sells HQ

Real Estate Weekly, July 2, 2003 by Sabina Mollotov

Future plans for German multimedia company Bertelsmann AG are currently hush hush, other than the recent signing of a contract in which the company agreed to selling its headquarters, the Bertelsmann Building in Times Square and its portion of the recently acquired Random House Building on 55th Street and Broadway.

The Random House office condominiums occupied a total of 645,000 SF. The Class-A, 44-story Bertelsmann Building on 1540 Broadway has approximately 1,092,294 SF of rentable space, said Dominick Maggio, vice president of corporate real estate for Bertelsmann Inc.

However, the sales of the two properties won't necessarily have any impact on the running of Bertelsmann or its various divisions, production or staff-wise, according to Random House spokesperson Stuart Applebaum.

"It's a very advantageous transaction for our parent company Bertelsmann, which we support," said Applebaum, "but it. has no impact whatsoever on our business, on our staff, or our tenant situation."

Random House is the publishing division of Bertelsmann AG Other corporate divisions include RTh group, Gruner & Jahr, BertelsmannSpringer, Arvato and BMG.

"1739 Broadway will be the home of Random House and its publishing endeavors for a long time," said Applebaum, who also confirmed reports that the company's long-tenn lease (15 years with the option of another 20) is conditional upon the signed contract stating the agreement of buyer and seller that Random House will be the only commercial tenant in the building. Although there will be some retail tenants that Random House will not be affiliated with, they will continue to occupy 25 floors of the property, which will continue to be called the Random House Building. German real estate investment, group Jamestown were the buyers of the Random House property, the New York Times reported on June 23.

Spokespeople for. Bertelsmann AG and for BMG Bertselmann's music division both declined to comment on what the sales of the properties will mean for the future of the company.

While a major company selling its buildings isn't typically seen as a sign of strength or growth, particularly a multimedia company during times of waning music and magazine sales, Bertelsmann isn't the only one choosing or being forced to give up equity in a prime, location. Earlier this month, Donald Trump was forced to sell his General Motors Building after a bitter court battle with the propert's co-owners, the now bankrupt Conseco insurance company.

Sorrentino was quoted in the New York Times as saying "for the most part; this is just financing, extracting value from real estate."

Edward T. LaGrassa was working as co-head of asset management for a workout group with Citibank when they sold their building to Bertelsmann in 1992. Now, as manager of commercial business development at Rose Associates, Inc., LaGrassa said he doesn't believe the sale of the Bertelsmann Building means the company is in any sort of financial trouble.

"Some corporations have different philosophies," said LaGrassa. "Bertelsmann is a private company, not a public one and the building is a tremendous amount of equity. "Some corporations want to own their assets, and sometimes they feel it's not the best use of their cash, as opposed to liquidating their assets and investing into the business where they can get the best return. There's no right or wrong are about it."

Steve Kohn, president of Sonnenblick & Goldman is also of the belief that often companies want to invest in their capital, "not in bricks and mortar."

"Generally corporate America believes that they should not be holding a lot of real estate on their balance sheets, unless it's special purpose space like labs. For just standard office space it doesn't make a lot of sense for a corporation like that to own it;" said Kohn.

Steven Spinola, president of the Real Estate Board of New York, said that Bertelsmann's selling of their property is a "sign of confidence."

"My understanding is that they thought this was an ideal time to sell an asset that has grown so much since they bought the building" said Spinola. "The estimation was that they can get $400 to $500 million. You have to look at the situation. Are they looking to make other investments or do they have loans to pay or was there a significant offer? I think it's a positive sign showing what people are willing to pay for real estate despite the economy and New York's current fiscal crisis. You have to look at it that Way."

"I don't know what their real motives are, but if they're selling because they think they can get a good offer, than clearly they're not wrong," said Spinola.

Although no contracts have yet been signed, RFR Realty, LLC has expressed "definite" interest in the property.

"It would be a great asset;" said Jason Brown, chief operating officer of RFR. "The tenant is good. We like the location. We've known the building for a number of years. We're interested in looking at it as an acquisition."