A Garment District building purchase could drag down the latest fundraising effort of one of New York City’s most active real estate investors.
Savanna went into contract in mid-February to buy 1375 Broadway for $435 million — the first purchase out of Savanna’s fifth private equity fund, which it launched late last year. But just a few weeks after the office building deal with seller Westbrook Partners, the coronavirus arrived in New York and virtually shut down the economy.
With office and retail tenants missing rent payments across the city, there’s a general consensus that operating incomes and thus values for New York office buildings have declined and will continue to do so until the economy recovers.
One source said Savanna held an initial closing on its Fund V of about $100 million. The company usually raises money from investors in different phases for its funds, which can reach $500 million or $600 million.
But income projections might well have fallen since Savanna underwrote the deal in February. It could be difficult to get more investors to buy into a fund that’s already underperforming, sources said.
“I don’t see how they’re going to have a second or third closing when a large deal is weighing it down,” commented a source familiar with the company, which was said to have put down a deposit on 1375 Broadway north of $30 million.
A representative for Savanna declined to comment.
Headed by Christopher Schlank and Nick Beinstock, Savanna has invested billions of dollars through a handful of private equity funds the company’s raised since launching its first pool in 2006.
Savanna usually makes opportunistic investments, buying properties that need work and fixing them up to sell for a gain — all within the lifespan of its different funds. The company’s properties include the 1.5 million-square-foot One Court Square tower — where Amazon was set to take 500,000 square feet before abandoning its Queens campus plan last year — and the Falchi Building, both in Long Island City.
Lately the firm has been buying buildings in the Flatiron District and Midtown East.
Savanna had previously owned 1375 Broadway, which it sold to Westbrook in 2015 for $310 million.
Part of the investment thesis for the property is to take advantage of a large block of space with a below-market rent that can be brought up to market.
Accounting firm Anchin, Block & Anchin, one of the building’s largest tenants, occupies roughly 120,000 square feet on a lease that is rolling over in a few years.
Contact Rich Bockmann at rb@therealdeal.com or 908-415-5229