Crown Acquisitions Inc and Highgate Holdings Inc are under contract to buy 650 Madison Avenue, an office tower in the heart of midtown Manhattan’s Plaza District in New York, in the biggest deal for a US building since 2010.
The companies agreed to pay US$1.3 billion for the 55,700m2 building, according to New York-based Crown. The sellers of the tower are investors led by Carlyle Group LP, a real-estate investment bank based in New York.
The purchase is the biggest of a single building in the US since Google Inc’s US$1.8 billion acquisition of 111 Eighth Avenue in late 2010 and it exceeds the record of US$1,583 a square foot (0.092m2) paid for 450 Park Avenue in 2007.
The price is largely a reflection of 650 Madison’s roughly 6,968m2 of retail space in one of Manhattan’s prime tourist and office areas, Carlton Group chairman Howard Michaels, said.
“You’re not going to find a more savvy group of investors than Highgate and Crown,” said Michaels, who represented another of the potential buyers. “This deal just affirms the desirability of the New York office and retail market.”
The area is known as the Plaza District because of its proximity to the landmark Plaza Hotel, two blocks west of 650 Madison. Some of the world’s most expensive retail space is nearby, including Apple Inc’s outlet at the General Motors Building across the street.
The current retail tenant at 650 Madison is a Crate & Barrel housewares store, under a lease that runs until 2019.
Crown managing principal Haim Chera said 650 Madison is not comparable to 450 Park because of its location at the center of a “retail triangle” created by Barneys to the north, Bergdorf Goodman to the west and Bloomingdale’s flagship Lexington Avenue store to the east. Those stores, plus Apple, combine for about US$2 billion worth of annual sales, he said in a telephone interview.
“We expect to achieve a retail value of close to US$1 billion on this asset, giving us a basis of about US$300 million in a trophy office building,” he said.
The new owners will discuss “reconfiguring” the Crate & Barrel space in an effort to unlock some of the value, he added.
The buyers intend to borrow only about half the purchase price, meaning they intend to have about US$650 million of equity in the property, with the rest in a senior mortgage, Chera said.
Eastdil Secured LLC’s Adam Spies and Douglas Harmon were the brokers on the deal.
Carlyle, based in Washington, and a partner paid US$680 million for the building in 2008, research firm Real Capital Analytics Inc said. The owners finished renovating the building earlier this year and completed more than 37,160m2 of leases.
“This is a great outcome for our investors and validates our opportunistic approach,” Robert Stuckey, managing director and head of US real estate at Carlyle, said in a statement.