The Real Deal New York

Not in my backyard: Tishman Speyer blocks SL Green from taking over Carlyle Group’s lease at 520 Madison

Landlord denies private equity group permission to transfer lease at 520 Madison
By Rich Bockmann | October 17, 2018 03:30PM

From left: Tishman Speyer’s Rob Speyer, 520 Madison, The Carlyle Group’s William Conway Jr., One Vanderbilt, and SL Green’s Marc Holliday (Credit: Getty Images, Tishman Speyer, Alchetron, KPF, and SL Green)

Hell hath no fury like a New York City office landlord scorned.

As part of its deal to bring the Carlyle Group to One Vanderbilt, SL Green Realty agreed to take over the remaining term on the private equity group’s lease at Tishman Speyer’s 520 Madison Avenue. But Tishman Speyer, uneasy with having to possibly compete with another landlord in its own building, is refusing to allow Carlyle Group to hand over the keys.

“[SL Green] is a direct competitor of [Tishman Speyer],” the landlord wrote in a rejection letter to Carlyle Group, adding that if it were to green light the deal, SL Green will sublease space in the building “in direct competition with [Tishman Speyer’s] own leasing activities.”

Representatives for Tishman, the Carlyle Group and SL Green declined to comment.

The Carlyle Group has been a tenant at Tishman’s 1 million-square-foot 520 Madison office building – one of the premiere addresses in the Plaza District – since 1999. It has a lease that runs for another 13 years, expiring in the spring of 2031.

In July, SL Green announced it had signed the private equity giant to a 15-year lease spanning more than 94,000 square feet at the 1.7 million-square-foot One Vanderbilt, which is currently under construction and scheduled for completion in 2020.

As part of the deal, SL Green offered the Carlyle Group a sweetener: It agreed to take over the remaining term on the company’s 100,000-plus square-foot lease at 520 Madison, effective the first day of 2021.

In August, Carlyle Group made an official request to Tishman Speyer asking for consent to assign the lease to an LLC that’s controlled by SL Green.

But earlier this month Tishman rejected the request, arguing that since SL Green controls the LLC, the agreement violates a provision in the lease barring Carlyle Group from transferring the lease to a competitor.

Carlyle Group , however, filed a lawsuit in Manhattan state supreme on Tuesday countering that its lease with Tishman has a technical loophole allowing the deal. Carlyle argues that the lease – while preventing the company from transferring its rights to a competing landlord – does not bar the tenant from handing over the lease to a company affiliated with a competing landlord, as is the case at 520 Madison.

“Apparently unhappy that Carlyle is leaving 520 Madison (built in 1982) for a new, state-of-the-art building (i.e. at One Vanderbilt), [Tishman Speyer] has unreasonably denied consent for Carlyle to assign the lease to [SL Green],” the lawsuit claims.

Carlyle Group is asking the court to rule that Tishman’s refusal is unreasonable, and to consent to the agreement with SL Green. A source with knowledge of the negotiations said the lease at One Vanderbilt is not contingent on Carlyle Group transferring the 520 Madison lease to SL Green.

Like SL Green, Tishman Speyer is building new office product in Manhattan. In April, Tishman Speyer announced that it signed Pfizer to an 800,000-square-foot lease at its upcoming 2.8 million-square-foot Hudson Yards office tower “the Spiral.”