NEW YORK CITY-Confirming rumors that have circulated for twomonths, RXR Realty said late Monday afternoon it’s under contractto acquire a 49% interest in the 739,000-square-foot office towerat 340 Madison Ave. Based on a $570-million property valuation, RXRis paying $279.3 million for the stake, its first direct propertyinvestment in Manhattan since its formation in 2007.

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A spokesman for RXR tells GlobeSt.com that the deal as announcedthis week differs from earlier published reports that said theUniondale, NY-based owner/developer would acquire 340 Madisonoutright in phases from its current ownership, a joint venture ofBroadway Partners and the D.E. Shaw group. As it’s now structured,the deal calls for Broadway to retain a 51% interest in theproperty. RXR will lead the recapitalization on behalf of theRXR/Broadway venture, as well as the refinancing of the existing$400-million first mortgage debt with ING Real Estate Finance.

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RXR will utilize capacity from its balance sheet and recentlyraised real estate opportunity fund to acquire the interest,according to a release. “By structuring this transaction in acreative manner, it allowed us to underwrite more attractivereturns than could otherwise be expected from an outright purchaseof the property,” RXR CEO Scott Rechler says in the release.

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He adds that now is “the opportune time to be investing inManhattan, as the leasing markets have bottomed and are primed fora near-term recovery.” It’s anticipated that RXR will assume theday-to-day management of 340 Madison in the near future, whileBroadway and RXR will serve as co-asset managers, the releasestates.

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The $570-million valuation represents a cap rate of 6% onin-place NOI and represents a 35% discount to replacement cost.Less than 4% of the 23-story tower’s rentable square feet willexpire over the next three years and less than 15% will roll in thenext eight years, according to the release.

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Broadway and D.E. Shaw paid $550 million in 2006 to acquire 340Madison from Macklowe Properties, which had spent $100 million toreposition and enlarge the 1920s-vintage tower. The JV raised itsoccupancy level from 43% to 92%. Its tenant roster includesFacebook, McDermott Will & Emery, Mass Mutual, PNC, SunGard andthe Office of the Comptroller of Currency. Vice chairmen DarcyStacom and William Shanahan of CB Richard Ellis representedBroadway and D.E. Shaw in the current deal with RXR.

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Paul Bubny

Paul Bubny is managing editor of Real Estate Forum and GlobeSt.com. He has been reporting on business since 1988 and on commercial real estate since 2007. He is based at ALM Real Estate Media Group's offices in New York City.