In the largest office sale since the Federal Reserve’s rate hikes froze commercial real estate markets, SL Green sold a stake in 245 Park Avenue in a deal that values the tower at $2 billion.
It’s a major breakthrough for the city’s office market, providing price discovery as investors try to figure out how to value office properties in an era of hybrid work and high borrowing costs.
Japanese developer Mori Trust last week closed a deal to buy 50 percent of the equity in the 1.7 million-square-foot tower north of Grand Central Terminal, sources close to the sale told The Real Deal.
The implied price of $2 billion is consistent with the valuation that was provided when SL Green acquired the 1960s-era building out of bankruptcy in September. The previous owner, China’s HNA Group, bought the tower for $2.2 billion in 2017.
As part of the deal, Mori Trust assumed half of the $1.76 billion in debt encumbering the building. The Tokyo developer — founded in 1970 by Akira Mori and now run by his daughter, CEO Miwako Date — also purchased about $500 million of the property’s debt.
SL Green Chief Investment Officer Harrison Sitomer said in a prepared statement Monday morning that the deal reflects the “continuing allure of investing in trophy Midtown New York assets and resilience of the Park Avenue corridor as New York’s most desirable office market.”
The purchase price works out to a cap rate in the high 3s, a data point that’s sure to ripple through the market as buyers and sellers try to work toward narrowing the bid-ask spread.
The deal is also a major boon to Marc Holliday’s SL Green — and not just for the vote of confidence Mori Trust gave the company. One of the REIT’s top priorities this year is to reduce its debt burden, and having its Japanese partner assume such a large portion of 245 Park’s mortgage removes hundreds of billions of dollars of liabilities from its balance sheet.
The sale also marks a major turning point in the saga of 245 Park, which struggled under HNA’s ownership and was stuck with a large vacancy when Major League Baseball relocated its headquarters to 1271 Sixth Avenue.
Since taking over the property, SL Green has sketched out a plan to overhaul the building with a new lobby, an amenities center, new elevator cabs and a full-service restaurant, among other upgrades.
The company earlier this month announced it had signed a pair of leases at the building totaling nearly 87,000 square feet, including a 15-year lease with Swedish private equity firm EQT partners. SL Green plans to fill the rest of the vacant space over the next 12 to 18 months.
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Mori Trust’s deal marks its first acquisition in New York City as it expands its footprint in the U.S. Last year the company bought an office building in Washington, D.C., from Boston Properties for about $500 million, Nikkei Asia reported.
The developer made its first U.S. purchase in 2017, when it bought a Boston office complex for $673 million.