Two midtown Manhattan buildings to sell for more than $1 billion

NEW YORK Wed May 8, 2013 6:18pm EDT

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NEW YORK (Reuters) - Two deals to sell two prime midtown Manhattan office buildings for more than $1 billion combined were reached on Wednesday - signaling another hike in New York City's commercial property values.

The pending sales by Hines, an international real estate firm, offer further evidence of the high prices U.S. commercial real estate are now commanding.

"We did think it was a propitious time," Tommy Craig, senior managing director of Hines' New York office, said.

The first property, at 499 Park Avenue, went to American Realty Advisors, which agreed to buy the tower for an institutional fund it manages, Hines said.

American Realty agreed to pay about $390 million, or $1,300 per square foot, for the I.M Pei & Partners-designed tower, situated at the corner of 59th Street and Park Avenue, a source familiar with the deal said.

That compares with $935 per square foot for the top 25 percent of Manhattan office buildings sold over the past 12 months, according to Real Capital Analytics.

Tenants in the 28-story, 300,000-square-foot property include Cantor Fitzgerald and Hines. It is the former headquarters of Bloomberg LP.

In a second deal, institutional investors advised by J.P. Morgan Asset Management agreed to buy 425 Lexington, a 31-story, 750,000-square-foot office building designed by Helmut Jahn.

J.P. Morgan Asset Management has agreed to pay about $700 million, or $933 per square foot for the tower, located across from Grand Central Terminal, the source said.

Simpson Thacher & Bartlett LLP, a law firm that occupies about 80 percent of the building, recently extended its 595,000-square-foot lease to 2033. Canadian Imperial Bank of Commerce (CIBC) occupies the rest of the building.

The properties were co-marketed by Doug Harmon and Adam Spies of Eastdil Secured, and Darcy Stacom and William Shanahan of CBRE Group Inc. Both sales are expected to close in the summer.

RECOVERED GROUND

Top-quality buildings have more than recovered the value they had lost in the downturn that followed the financial crisis of 2008. In April, the Green Street CPPI All-Property Index. which measures values of high-quality U.S. commercial real estate, was 1 percentage point above their 2007 highs.

The index for office property values rose 6 percent from a year earlier but was 13 percent points below the 2007 peak level.

The pending sales of the Hines properties could push values higher in future deals, particularly those in Manhattan, said Michael Knott, Green Street managing director.

"I think there's an emerging number of data points now that they're starting to suggest that values were higher than we thought," he said.

But the stock prices of some REITs with holdings in markets such as New York have not yet caught up, Knott said.

That said, the price increases have led some publicly traded real estate investment trusts, such as Vornado Realty Trust(VNO.N), to be net sellers this year.

"My belly tells me that prices are now higher than future prospects, and therefore we will buy carefully and this year likely sell more than we buy," Steven Roth, chief executive of Vornado, said in a conference call with analysts on Tuesday.

Roth also said that prices may not yet be done.

"I do know that compared to historic prices, asset values are very high. They may go higher. If interest rates stay low, who knows?"

Hines is building a 470,000 square-foot office building called 7 Bryant Park on 42nd Street near Avenue of the Americas.

(Reporting by Ilaina Jonas; Editing by Frank McGurty and Leslie Gevirtz)

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