06/26/2013

SL Green Team Shops NY Office Leasehold

An SL Green partnership is shopping the leasehold interest in a Midtown Manhattan office building.

SL Green and Canada Pension Plan acquired the 392,000-square-foot building last year for $252 million, or $649/sf. The duo plans to retain the underlying land and sell the 37-story tower, at 10 East 53rd Street in the coveted Plaza District. CBRE has the listing.

The building is 90% full, but publisher HarperCollins, which leases 55% of the space, plans to vacate when its lease expires next June and relocate to 195 Broadway in Lower Manhattan. So a buyer would likely reposition the property as either boutique office space or a high-end hotel or residential building.

To avoid triggering a big transaction-tax liability, SL Green and Canada Pension Plan won’t technically structure the transaction as the sale of a leasehold interest, but rather will give a long-term operating lease to the buyer. But the effect is the same, according to real estate pros.

One benefit of such an arrangement for the buyer is a lower upfront capital outlay, since it would be making lease payments rather than purchasing the building. The buyer, however, would have to have capital available to cover any costs associated with a repositioning or lining up tenants.

SL Green and Canada Pension Plan acquired the property from a joint venture led by Houston-based Hines. SL Green, a New York REIT, holds a 55% stake in the partnership, with the Canadian investor holding the rest.

The property, constructed in 1972, stretches from East 52nd to East 53rd Streets mid-block between Fifth and Madison Avenues. An open-air pedestrian walkway through the first floor connects the two streets.

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