Last year saw a number of notable commercial transactions, as the rising demand for Manhattan trophy office properties, coupled with a large amount of low-interest capital available to credit-worthy borrowers propelled the total deal volume in the five boroughs. In 2011 quarters one through three, New York City commercial sales amounted to $19.1 billion — up 111 percent from the same period in 2010, according to a report from Massey Knakal Realty Services. And the 10 largest transactions of 2011 accounted for $5.76 billion in volume alone, according to a list from PropertyShark.com of the top 10 biggest deals by price prepared for The Real Deal (see chart).
A window of opportunity and optimism opened in 2011, according to Nat Rockett, executive vice president with Cushman & Wakefield’s New York Capital Markets Group, in part due to “pent-up” activity that had been stalled during the dark days of 2009. “That more positive environment existed through really the first half of 2011,” he said, but cooled later in the year as fears of European debt woes, and uncertainty in our domestic political situation surfaced, putting a damper on the market. Still, trophy properties traded steadily, with transactions for three Park Avenue office towers in the top 10.
The biggest transaction of 2011 was the purchase of the Starrett-Lehigh Building, at 601 West 26th Street, by Scott Rechler’s RXR Realty for $920 million. The 2.3 million-square-foot property, between 11th and 12th avenues, was previously owned by Shorenstein Properties, one of the nation’s largest landlords. The 19-story building sits on an entire block between 26th and 27th streets in Chelsea, and represents the growing interest of commercial buyers in the area following Google’s purchase of 111 Eighth Avenue for $1.8 billion at the end of 2010.
Many of the year’s biggest transactions were recapitalizations, said Jay Neveloff, a partner at Kramer Levin Naftalis and Frankel, a leading real estate firm. “Almost every transaction… involved recapitalization of some form or another…There is an abundance of equity for investment and low-interest is making it easier to restructure deals,” he said.
The $760 million recapitalization at the building once-named for Leona Helmsley — 230 Park Avenue — was the second largest commercial transaction in 2011. Invesco Institutional, an Atlanta-based investment manager, and a South Korean pension fund, together took a 95 percent interest in the 1.2 million-square-foot office tower across the street from Grand Central Terminal. The trophy tower had been purchased by Monday Properties in a partnership with one of Goldman Sachs’ Whitehall Street funds for $1.15 billion at the market’s apex in 2007. As The Real Deal reported at the time, Goldman took a nearly $400 million loss in the deal.
In August, the Alaska Permanent Fund, an investment fund that manages the state’s oil revenue, bought a 49.5 percent stake in 299 Park Avenue for about $1,075 a square foot, which deductively valued the sleek, 42-story edifice at $1.25 billion, according to published reports. The seller was Rockpoint Group, a Boston-based real estate investment firm, and they received $623.7 million for their stake. Across the street, 280 Park Avenue and 33 East 48th Street (transaction no. seven on the list) also traded hands, as rival real estate investment trusts SL Green and Vornado teamed up, pooling their debt and equity to take a “significant majority” position at the 31-story tower between 48th and 49th streets for $499.8 million. The pair, New York City’s largest REITs, took the debt from co-owners Broadway Partners and Investcorp Bank, who also bought the asset in a frothy market.
A package comprised of 55 East 42nd Street — also called Park Avenue Plaza — and 49 East 52nd Street also traded hands for $569 million last year, coming in at number four, as mysterious buyer Soho China, whose address was the residential tower where JPMorgan CEO Jamie Dimon lives, took the buildings from Rockpoint. Top-shelf 10ants such as BlackRock and the consulting firm McKinsey call Park Avenue Plaza home.
The home of the Associated Press, 450 West 33rd Street, also underwent a significant recapitalization, with Brookfield Properties taking a majority stake in a complex transaction wherein the landlord avoided putting down much cash but will be “on the hook” when the property’s $517 loan comes due in mid 2012, according to published reports. The recapitalization marked the fifth largest deal of 2011.
CALSTRS, a California teachers’ retirement fund, sold its 65 percent stake in Lower Manhattan asset 120 Broadway after six years for $525 million, according to PropertyShark.com. Silverstein Properties retained its stake in the building, and UBS Realty picked up CALSTRS’ portion, in the sixth largest deal of last year.
In the eighth largest commercial transaction, Kuwaiti firm Fosterlane Management got into the game as well, nabbing Hines Interests’ 750 Seventh Avenue for $485 million in a package with 758 Seventh Avenue. And at number nine, the largest real estate investment trust, UDR, purchased the Murray Hill apartment building Rivergate for $443 million, announcing it would be putting $1.8 billion into New York City residential rental real estate in the coming years.
Rounding out the top 10 was the city’s only top commercial transaction outside Manhattan — the sale of Two Gotham Center in Long Island City, Queens, by Tishman Speyer in a partnership with Square Mile Capital and the Modell family for $415.5 million. The purchaser was H&R, a Canadian real estate investment trust.
And will 2012 bring deals this big? Probably not, but you never know, Rockett said. “It’s hard to project dollar volumes, as one or two big deals can really throw the numbers, but I think transaction volume is likely to be lower in the first half [of 2012]; certainly lower than the first half of 2011,” he said. “Beyond that — it’s hard to predict.”