SL Green OKs Two Building Sales

NEW YORK CITY—SL Green Realty Corp. has executed agreements to sell its interest in two Manhattan properties, including the Lipstick Building, in deals valued at $649 million.

The REIT reports it has agreed to sell its leased-fee interest in the 885 Third Ave. office building, also known as the Lipstick Building, here for a gross sale price of $453 million. SL Green has also reached an agreement to sell the recently completed Pace University dormitory tower at 33 Beekman St. for a gross sale price of $196 million. SL Green owns the dormitory property in a joint venture and co-developed the property with the Naftali Group. SL Green declined to reveal the identity of the buyers in either transaction.

SL Green acquired the leased fee interest in 885 Third Ave. in a joint venture with Gramercy Capital Corp. in 2007 at a gross asset valuation of $317 million and subsequently fully consolidated its position in 2010 at a gross asset valuation of $352 million. As part of the latest transaction announced today, SL Green will retain a preferred equity position.

The company—the city's largest office landlord—would not reveal the identity of the Lipstick Building buyers. However, Cerruzzi Properties and Shanghai Municipal Investment USA reportedly acquired the leased-fee interest, according to the Commercial Observer. The lease is said to be for 67 years and Holliday Fenoglio Fowler's Christopher Peck and David Nackoul brokered the deal.

The sale, at a capitalization rate of 3.8%, will generate net proceeds to SL Green of approximately $45 million, after giving consideration to the retained preferred equity interest and the in-place mortgage of nearly $268 million, according to the company. The mortgage is scheduled to mature in 2017. The sale of 885 Third Ave. is expected to be completed in the fourth quarter.

The 33 Beekman St. dormitory building was jointly developed by SL Green and the Naftali Group. It houses 772 dormitory beds, and features a public plaza and ground floor retail and amenity space used by the university. The project is SL Green's second successful dormitory development for Pace. The firm built the 609-bed dormitory and retail project at 180 Broadway, which was completed and delivered in early 2013. The sale of 33 Beekman St. building at a cap rate of 3.9% will generate net proceeds of approximately $64 million to SL Green and is expected to be completed in the first half of 2016.

SL Green's co-CIO David Schonbraun says the sales follow the company's previously announced strategy of funding its 11 Madison Ave. purchase with the sale of non-core assets. “The sale of 885 Third Ave. is the realization of our third successful investment in a Manhattan leased fee position, including Two Herald Square and 292 Madison Ave., while the sale of 33 Beekman further evidences the strength of SL Green's internal development team and their ability to construct high quality properties that can meet the unique needs of space users.”

He adds that based on the continued strong demand from both foreign and domestic investors for New York City commercial real estate, SL Green intends to “continue to take advantage of market conditions to maximize shareholder returns by selling mature assets and redeploying the proceeds into more accretive investments.”

Earlier this month, SL Green sold its interest in the commercial condominium at 315 W. 36th St. for $115 million, or $779 per square foot. Also earlier this month, Onyx Equities and SL Green sold the 600,000-square-foot The Meadows Office Complex in Rutherford, NJ for $120 million to a private investor.