SL Green Realty, the largest office landlord in Manhattan, has successfully sold a 49.9% stake in the prestigious 245 Park Avenue tower for a staggering $2 billion. This sale surpasses expectations and serves as a testament to investor confidence in top-tier New York office properties, despite the city's current record-high vacancy rates.
The buyer, Mori Trust, a Tokyo-based company, marks its first investment in New York. SL Green acquired the 44-story building near Grand Central Terminal in partnership with Mori Trust in September with the intention of repositioning the property. The transaction demonstrates the institutional capital markets' recognition of the immense potential held by 245 Park, according to Harrison Sitomer, SL Green's chief investment officer.
Analysts have hailed the sale as a positive development, particularly due to the higher-than-anticipated asset valuation. Morgan Stanley analyst Ronald Kamdem noted that the sale price of $1,122 per square foot implies a positive equity value and exceeds SL Green's initial basis. Prior to the pandemic, the property was sold for $2.21 billion, as reported by CoStar data.
This deal comes at a time when the New York real estate market is grappling with challenges, including a decline in market sale prices per square foot to $605 and a record-high office vacancy rate of 13%, as indicated by CoStar data.
Despite these hurdles, the acquisition of 245 Park Avenue highlights investor confidence in the largest U.S. commercial property market, particularly in midtown Manhattan, which currently boasts a lower office availability rate compared to south midtown and downtown, according to Colliers.
SL Green intends to utilize the proceeds from the sale to repay its debt, demonstrating a strategic move to strengthen its financial position. The company's stock witnessed a 20% surge on the day of the announcement, reaching approximately $28. Truist analyst Michael Lewis described the transaction as in line with SL Green's stated plans and exceeding expectations, suggesting positive outcomes for investors and industry observers.
Known for its partnerships with foreign investors, SL Green has consistently attracted joint-venture partners to its prime properties. As of its annual report, the National Pension Service of Korea had invested in One Vanderbilt and One Madison, while Korean and Israeli institutional investors held ownership stakes in 450 Park. SL Green's portfolio includes notable Manhattan Class A office towers, such as One Vanderbilt and the recently acquired One Madison Avenue.
SL Green plans to revamp 245 Park with the assistance of architectural firm Kohn Pedersen Fox Associates, focusing on enhancing the building's lobbies, podium facade, and systems. Designed by Shreve, Lamb & Harmon Associates, the renowned architects behind the Empire State Building, 245 Park has long been regarded as a "headquarters caliber" building and has played a significant role in establishing Park Avenue as one of the world's premier business avenues, according to SL Green.
The successful sale of 245 Park Avenue not only bolsters SL Green's financial position but also reaffirms investor confidence in the New York office market. Despite the challenges posed by the pandemic and the current vacancy rates, this transaction underscores the resilience and long-term value of prime office properties in Manhattan.