Partial sales pick up steam

The market for large slices of Manhattan’s priciest properties got off to a smart start in January fueled on the sales side by big-ticket projects seeking capital, and on the buyers’ side by foreign investors opting to buy stakes rather than the whole kahuna.

“Pre-credit crisis, minority sales activity was a relative blip on the radar screen,” said Douglas Harmon, chairman of the capital markets group at Cushman & Wakefield.

“There was a time when partial stakes traded at a discount to the overall property value, and these investments came with little to no rights,” he said, adding that the structuring and governance of investor rights have “evolved significantly over time.”

In the first billion-dollar sale of the year, the Singaporean sovereign wealth fund GIC snapped up a 95 percent stake in 60 Wall Street in a deal that valued the 50-story office tower at $1.1 billion. Paramount Group held on to a 5 percent stake in the property, while partner Morgan Stanley exited entirely.  Only days later, SL Green Realty Corp. announced that it sold two minority stakes totaling 29 percent in its planned 1.7-million-square-foot One Vanderbilt tower — to the National Pension Service of Korea and Hines. The deal pumped $525 million of equity into the project expected to cost more than $3.1 billion.

And in late January, Jared Kushner [TRDataCustom] sold his remaining equity stake in 666 Fifth Avenue, the property he purchased for $1.8 billion in the 2007. Kushner is divesting himself of his business interests as he takes a major role in the Trump Administration. A spokesperson for Kushner Companies said the buyer was a family trust, which had paid an undisclosed, fair-market price.

Last year, such partial-stake deals accounted for a whopping 60 percent of the billion-dollar sales logged in Manhattan, according to Cushman & Wakefield — up from 42 percent in 2015. Given the number of stakes already on the market this year, such growth looks likely to continue. 

Brookfield Property Partners is shopping a 49 percent stake in its 8-million-square-foot Brookfield Place complex in expected to value the property at $5 billion. Similarly, SL Green wants to sell a minority stake in its 54-story office tower at 1515 Broadway that could value the 1.75 million-square-foot property at $2 billion.   Meanwhile, New York REIT is offering a 49 percent stake in One Worldwide Plaza, the 1.8 million-square-foot office tower valued at $1.45 billion in 2013.

Breaking up is hard to do

Unlike a flat-out purchase, there are myriad points to negotiate regarding partnerships when two or more parties are teaming up to buy a property — from governance issues to management fees to how to exit the deal.

“Generally speaking, anytime you have a partnership, you have a divorce agreement,” said Woody Heller, head of the capital markets group at Savills Studley.

Frequently, a partner has the right of first refusal, which gives them the option to match an outside party’s offer on the other partner’s stake. In other cases the agreement can require one partner to obtain approval from the other in any sale.

“If you want to get out, you can offer to sell your interest to a third party, but you can’t just shove anybody down my throat,” Heller explained.

In other cases, one party has the right to buy out another down the line. That’s what happened last June, when Ivanhoe Cambridge and Callahan Capital exercised an option in their ownership agreement for 1211 Sixth Avenue to buy out minority stakeholder Beacon Capital Partners. In that case the duo bought a 49 percent stake valued at $913 million in the 2 million square foot building.

For the seller, a partial-interest deal is often part of the capitalization plan for a new development, as it was when SL Green brought in its equity partners on One Vanderbilt. In other cases, these transactions can help an owner who is determined to keep the property show the market the hard value of that asset.

That’s what happened when Forest City Ratner Companies sold a 49-percent stake in its 409-unit New York by Gehry apartment tower at 8 Spruce Street in 2012 for $250 million to the retirement fund TIAA-CREF. The deal valued the building at $1 billion — the highest valuation for a residential rental building in the country at the time.

Forest City CEO MaryAnn Gilmartin called it “proof positive of the value we created.”