Carlyle, Capstone mulling signage-only condo at 570 7th Ave.

A joint venture between the Carlyle Group and Capstone Equities, which paid $83 million for a Times Square office building at 570 Seventh Avenue last year, is considering creating a condo offering specifically for the property’s lucrative signage, The Real Deal has learned.

The 21-story, 170,000-square-foot Class B building is located at West 41st Street, one block south of Times Square. The area plays host to more than 350,000 pedestrians daily, and brands are willing to pay landlords millions of dollars in annual rent to advertise on their buildings.

Representatives for the ownership declined to comment. The building is currently asking an annual rent of $8 million for both the signage and the building’s 20,000-square-foot retail space, according to a source familiar with the property. The signage component includes 3,178 square feet of LED signage and 5,852 square feet of static signage, according to the property’s website. It’s unclear what just the signage would sell for, as few comps for such a product exist in the market.

What’s evident, however, is that signage is big business for landlords in the area. Swedish retailer H&M struck a deal in August with the Durst Organization’s 4 Times Square to install four illuminated 70-foot-by-70-foot panels atop the skyscraper, in a transaction that Durst said would pull in multiple million dollars in annual rent.

Creating a signage-specific condo would involve taking an unrentable portion of the building’s interior and documenting it in a condominium offering plan, according to a source familiar with the process. The move will allow the owners to comply with the requirement that an offering plan can only be drawn up on the basis of actual physical space in the building, the source said. “If you have a revenue stream, whether it’s a sign or big antenna, you can create a condo unit — it could be as small as a closet,” said Jay Neveloff, a partner at Kramer Levin. “A tax lot would be assigned, and then you sell it separately and finance it separately.”

Neveloff said condominiumizing signage can open up the building to more investors. “There are people who are going to willing to pay a lot of money for that income stream,” he said. “I’ve certainly over the past few years represented buyers who are actively looking for signage. Every building in Times Square could explore this opportunity.”

It could also help the landlords appeal to more lenders, said Nicholas Kaiser, a partner at law firm Cohen & Gresser. “Different lenders have different asset categories and profiles that they tend to focus on,” Kaiser said. “You can maximize the amount of leverage by slicing it into different pieces and reaching out to lenders amenable to those kinds of assets.”