Sorgente storms the city

After buying Flatiron Building, Italian firm looks to add more trophies to U.S. portfolio

Jan.January 01, 2010 04:56 PM
Veronica Mainetti
Veronica Mainetti, who heads the Sorgente Group’s U.S. office, in front of the Flatiron Building, in which the firm owns a majority stake.

For more than a year, foreign investors have been sitting on the sidelines waiting for a sign that the capital markets were beginning to thaw and the time was right to invest in New York real estate.

One of the first big tests for them may be coming from an unlikely source: the Sorgente Group, a Rome-based investment firm that has already acquired some of the city’s most iconic properties and is currently negotiating to buy another — the famed Woolworth Building in Lower Manhattan.

In addition to those Gotham properties, the group, headed by investor Valter Mainetti, is reportedly in talks to acquire some of the most sought-after buildings in the United States, including San Francisco’s TransAmerica Pyramid.

The publicly traded company is one of the biggest real estate groups in Italy, controlling more than $2 billion worth of property around the world, including the Galleria Colonna shopping center in Rome and the Hotel Le Saint Paul on the French Riviera.

Mainetti, a longtime investor and developer who lives in Rome, launched Sorgente in 1999. He grew the firm by raising hundreds of millions of euros using equity funds backed by leading European investors, including wealthy individuals, pension funds and other institutional players.

Guido Pompilj — the managing director of Manhattan-based Vivaldi Real Estate who advised the Sorgente Group when it first entered the U.S. market in 2004 — said the company has been conservative in its approach, focusing more on long-term capital appreciation than speculative turnarounds.

“They’re looking more at the asset value, as opposed to only focusing on the returns,” said Pompilj, a former investment director for CB Richard Ellis in Milan.

Sorgente reported that the value of its funds rose 2.5 percent in 2008 (the latest figures available), compared with the prior year; however, the value of its Michelangelo Fund, which includes the firm’s New York investments, fell 1.99 percent for the six-month period that ended June 2009.

In 2005, Sorgente acquired an approximately 20 percent stake in the Chrysler Building for a reported $45 million. Three years later, in July 2008, the Abu Dhabi government bought a 90 percent stake in the building for $800 million, one of the city’s last major commercial building sales before the collapse of Lehman Brothers.

Valter Mainetti was not immediately available for comment, but his daughter Veronica Mainetti, who heads Sorgente Group’s U.S. office, said the success of the Chrysler Building investment demonstrated why investing in trophy towers can still mitigate the impact of a down market.

“We knew there was a bubble,” Veronica Mainetti told The Real Deal. “People have been talking about it for the past five years.

“The truth is that we were able to sell the Chrysler Building because this kind of building loses less value in critical periods such as this.”

Last January, just months after the Chrysler Building sale, Sorgente closed on the purchase of a majority stake in the Flatiron Building, the landmark tower at 175 Fifth Avenue, for $190 million. The company’s long-term goal is to convert the property into a luxury hotel; however, Macmillan Publishing is locked into a long-term lease for another 10 years.

Valter Marinetti, the head of the Sorgente Group, is in talks to buy some of the most sought-after property in the country.

“I think their main goal was to invest in distinctive landmark buildings,” said Newmark Knight Frank chairman Jeff Gural, who led an investment group that sold its stake in the Flatiron Building to Sorgente for $51.8 million in October, and who continues to manage the property. “They have a long-term perspective and I think we were the right fit.”

Mark Gordon, an executive vice president and principal at commercial finance broker Cushman & Wakefield Sonnenblick Goldman, said investors like Sorgente view the current market as an opportunity to invest in mature, income-producing real estate assets at historically low prices.

“Investors that have the ability to take a long-term investment horizon view the current environment as one of the opportunities of a lifetime to acquire New York real estate,” said Gordon, who heads up the firm’s hotel group. He has been involved with Sorgente on previous deals, but declined to say which ones.

Meanwhile, Sorgente is in the process of assembling a $500 million real estate investment trust in the U.S., which will target both wealthy American investors and institutional money from insurance companies and other sources, according to Veronica Mainetti.

She also confirmed reports that the company is in discussions with the owners of the Woolworth Building — the Witkoff Group and investor Rubin Schron — to acquire a majority stake in the iconic 57-story tower at 233 Broadway. She declined to provide any details about the negotiations. Neither Steve Witkoff, head of the Witkoff Group, nor Schron, principal of Cammeby’s International, were immediately available for comment.

Veronica Mainetti also declined to comment on the Financial Times report that quoted her father saying Sorgente was trying to buy the TransAmerica Pyramid in San Francisco; she did, however, confirm that Sorgente is looking for trophy assets in Boston and Chicago.

Cindy Nodorft, spokesperson for TransAmerica’s parent company, Aegon, said, “The building is not for sale.”

While Sorgente’s primary focus has been on commercial office buildings, it is making more limited investments in the New York residential market, where it wants to focus on converting historic properties into boutique condos.

In 2007, Sorgente purchased two adjacent rental buildings on Greene Street in Soho for $14 million and converted them into 34 Greene Street, a luxury condo.

Veronica Mainetti oversaw a meticulous conversion of the properties, two 1873 cast-iron lofts, led by the building’s previous architect, Thomas McKay. “They’re very much purists in how they restore a building,” said Jason Karadus, senior vice president at Prudential Douglas Elliman and the sales broker at 34 Greene Street. “Their attention to detail and overall quality of restoration is as good as anyone I’ve ever worked with.”

Prices range from $3.8 million, for a 1,900-square-foot two-bedroom, to $13.7 million for a 4,900-square-foot penthouse. Thus far, one two-bedroom, 1,997-square-foot apartment is under contract for $4.4 million at the eight-unit building, according to StreetEasy.

Officials at Sorgente acknowledge that such a condo project is risky in the current market. But if the project is successful, Sorgente plans to use 34 Greene as a prototype for other residential projects in New York.

Sorgente officials are negotiating a deal to acquire a commercial office building in Lower Manhattan that would also be converted into a residential condo, Mainetti said. While declining to name the address, Mainetti said the Downtown property would be twice the size of 34 Greene.

With few investors willing to dive into New York’s highly leveraged real estate market, Sorgente may prove to be the first of many foreign firms ready to test the waters.

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