Citigroup Inc, the world's largest financial services company, agreed to sell its New York headquarters to Boston Properties Inc for US$1.06 billion, taking advantage of investor demand for New York office buildings.
Boston Properties, the third-largest office real estate investment trust, will buy 399 Park Avenue from Citibank NA, said Christina Pretto, a Citigroup spokeswoman. The financial services company, which occupies about 40 percent of the building, will realize a pretax gain of about US$830 million, US$530 million of that when the transaction closes, scheduled for late September.
Citigroup has been able to sell assets as bankruptcies such as Enron Corp's and recessions in Latin America hurt earnings. It added US$1.06 billion, or US$0.20 a share, in the first quarter by selling a stake in Travelers Property Casualty Corp. With investors betting New York office vacancies have peaked, the bank is getting a near-record US$630 a square foot for the tower.
"They get the advantage of structuring their own lease, and they get to take advantage of a strong market for stable, reliable cash flows," said Douglas Harmon, managing director at Eastdil Realty Inc. "Investors will pay for that safety especially when it's in a great location like this." Citigroup shares fell US$0.33 to US$33.82 at 4pm on the New York Stock Exchange and have fallen 30 percent this year. Boston Properties fell US$0.25 to US$37.90, and have fallen less than 1 percent this year. The sale was announced after the close of trading.
The sale would be the largest US real estate transaction this year, exceeding the pending US$745 million purchase of 1290 Avenue of the Americas in New York by Jamestown, a German real estate syndicator based in Atlanta.
"We believe this transaction represents a terrific opportunity and value for our company," said Sanford I. Weill, chairman and chief executive of Citigroup, in a statement.
New York buildings sold or put under contract this year also include the Empire State Building and 450 Lexington Avenue. Lehman Brothers Holdings Inc last year paid Morgan Stanley a record US$650 a square foot for 745 Seventh Avenue, an almost-completed building near Times Square, after Lehman's headquarters was damaged in the World Trade Center attack.
Last year, the Boston-based real estate investment trust, whose chairman is publisher Mort Zuckerman, bought a 66 percent share of Citigroup Center, a 59-story tower across Lexington Avenue from Citigroup's headquarters building.
The building at 399 Park is fully occupied, with 75 percent of the leases for terms in excess of 10 years, the companies said.
Zuckerman is "a huge bull on the future of Manhattan," said Sam Damiani, an analyst at Toronto-based TD Newcrest Inc.
"Stability is crucial in today's environment, with the national office market likely to remain soft for a number of quarters to come." Damiani estimated the property will yield a 7.7 percent return for Boston Properties during its first year of ownership.
Rents in the building average US$85 a square foot, according to CoStar Group Inc, a real estate information service.
Boston Properties also owns 599 Lexington Avenue, 280 Park Avenue, 875 Third Avenue and Five Times Square, all in New York.
It is building Times Square Tower, which was to have been rented to Arthur Andersen until the accounting firm broke its lease in April.
Among real estate investment trusts, only Equity Office Properties Trust and Trizec Properties Inc. own more office space than Boston Properties.
Boston Properties will hold a conference call on Tuesday at 10am to discuss details of the transaction, said Edward Linde, the company's president.
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