The recent acquisition by SL Green of Reckson Associates Realty will benefit SL Green’s investors, analysts say, by improving the portfolio of New York’s largest office landlord. SL Green announced the $6 billion acquisition in early August.
Analysts of the public real estate investment trust forecast a sizable earnings upside from the five Manhattan buildings acquired in the deal, which add about 4.1 million square feet to SL Green’s holdings. Three of the five buildings, however, are already 100 percent leased, which cuts into short-term gains through rent hikes. SL Green paid around $669 per square foot for the Manhattan buildings.
“SL Green was able to acquire five quality properties in arguably one of the best markets in the country in a situation where there was not a pure bidding war for each property,” said Dan Fasulo, director of market analysis at research firm Real Capital Analytics.
The fully occupied buildings Green acquired are 919 Third Avenue (1.45 million square feet), 810 Seventh Avenue (690,000 feet) and 120 West 45th Street (445,000 feet).
The other buildings in the deal, 1185 Avenue of Americas (1 million feet) and 1350 Avenue of Americas (560,000 feet), are more than 98 percent occupied, but have a substantial near-term lease rollover. “They’ll basically raise yield by raising rents when they have tenant rollovers, improving returns over time,” said Fasulo.
Steven Durels, executive vice president and director of leasing at SL Green, said the acquisitions diversify the REIT’s Midtown holdings. “The majority of our buildings are near Grand Central,” said Durels. “This was the perfect opportunity to diversify and upgrade the quality of our portfolio.”
SL Green also picked up a number of suburban properties located off the train lines that feed into Grand Central, which will benefit SL Green’s tenants, said Fasulo. “SL Green will be able to service existing tenants,” he said, “with overflow space in their Midtown portfolio or at a lower price point in the suburbs.”
When it closes in January 2007, the deal will increase SL Green’s office space ownership to 28 million square feet, of which 24.5 million square feet are in the city.