Did lack of foreign interest doom NYRT’s sale of One Worldwide Plaza?

After receiving disappointing bids, the REIT kept a 50% stake

New York /
Sep.September 14, 2017 01:40 PM

Foreign investors are becoming a rare species in New York’s real estate market, and that may have put the kibosh on the sale of One Worldwide Plaza.

New York REIT put the entire office tower on the market earlier this year and hoped to sell it for $1.7 billion or more, but after receiving disappointing bids it changed track merely sold only a 48.7 percent stake. The company’s CEO Wendy Silverstein blamed a lack of foreign interest.

“If we did this deal in 2014 or 15 foreign buyers probably would have come in and written that large equity check,” Silverstein said during an investor call Thursday. “We missed the boat with zero foreign buyers in the market.” She added that all bidders for the tower were from North America.

Chinese investors, until recently the most aggressive bidders for Manhattan trophy towers, have somewhat retreated from the market amid regulatory pressure from Beijing.

On Monday, the REIT announced that RXR Realty and SL Green Realty Trust agreed to buy a 48.7 percent stake, valuing the tower at $1.73 billion.  During Thursday’s call Silverstein shared details on how it came to that.

She claimed New York REIT received three final bids for the 1.8 million-square-foot tower ranging from $1.725 billion to $1.74 billion in June. But all three offers required the REIT to hand the tower over “unencumbered” by its existing $870 million mortgage, which carries a relatively high interest rate of 4.6 percent, has high amortization costs, prohibits the owners from taking out mezzanine debt and expires in 2023. According to Silverstein, getting out of the loan early carries a defeasance cost of $116 million. In other words: the $1.725 billion bids were really only worth around $1.61 billion — well below what NYRT thought the tower was worth.

“The company is not simply forced to sell at any price,” Silverstein said. Instead she sold a stake, which has the advantage that NYRT can now use RXR and SL Green’s balance sheet and standing among lenders to refinance the tower with cheaper debt. The partners hope to land a $1.2 billion mortgage with an interest rate of less than 4 percent later this year.

Silverstein claims the refinancing will leave the REIT with a $192.7 million cash profit on top of the $153.5 million it is raking in through the sale of the equity stake. The partners hope to increase the building’s value by signing lease renewals and “rebranding and renaming” the tower, which Silverstein estimates may take two years.

In the meantime, a sale of NYRT’s remaining 50.1 percent stake remains on the table. “What we’ve done is create maximum flexibility to sell at literally any time,” she said. RXR and SL Green have a right of first offer.

NYRT is in the middle of liquidating its 4.4-million-square-foot office portfolio after years of lackluster stock performance.


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