07/27/2011

Savanna Lands Class-B Manhattan Building

Savanna Investment is under contract to pay $130 million for the leasehold interest in a Class-B office building near Madison Square Garden in Manhattan.

The purchase price for the 418,000-square-foot Penncom Plaza, at 132 West 31st Street, translates into $311/sf. Jones Lang LaSalle is advising the seller, a joint venture between C&K Properties and Zamir Associates, both of New York.

Savanna, a New York fund shop, targets properties that have upside leasing potential. In recent months, it has been buying distressed commercial mortgages with an eye on taking control of the underlying collateral, but the firm also looks to acquire Class-B buildings with up to 500,000 sf.

The 18-story Penncom Plaza is 98% occupied, according to CoStar, but 44% of the space will become vacant in January, giving Savanna an opportunity to boost rents. The initial annual yield on the investment couldnít be learned.

The C&K partnership bought the leasehold interest in Penncom Plaza for $91 million in 2004 from Tribeca Associates of New York and Ritchie Capital of Wheaton, Ill. At the time, it was the third flip of the building in as many years.

The Lemle family owns the underlying land. It sold the leasehold interest in 1997 to a partnership between Taconic Investment and Blackacre Capital, both of New York. The ground lease, which has rent bumps every five years, expires in 2046. The lease holder has an option to buy out the Lemle family in 2017.

Penncom Plaza, which was built in 1925, was long known as Greeley Arcade. It is midblock between Sixth and Seventh Avenues, stretching from West 30th to West 31st Streets, a half-block east of Madison Square Garden and Pennsylvania Station.

Savanna is presumably investing via its $550 million Savanna Real Estate Fund 2. The manager seeks a 15-17% return by investing in a broad mix of properties in the Boston-to-Washington corridor, although in the past year it has focused mostly on Manhattan. The firm targets properties that have distressed owners, are underperforming or undercapitalized, or are suitable for redevelopment or repositioning. It also buys performing and nonperforming loans, and invests in preferred equity.

The managerís most recent purchases in Manhattan included debt positions on the office buildings at 80 Broad Street and 100 Wall Street. Savanna foreclosed on 100 Wall Street three months ago. It has begun foreclosure proceedings on 80 Broad Street.

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