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August 14, 2019  

NY Tower, Underlying Land Pitched Separately

A J.P. Morgan Asset Management partnership is exploring a recapitalization that would result in bifurcating the ownership of a Lower Manhattan office building and the land beneath it.

The 1.1 million-square-foot property, at 195 Broadway, is valued at up to $800 million, or $725/sf. J.P. Morgan wants to sell its 95% ownership interest. L&L Holding, which holds the remaining interest and operates the building, wants to remain. Under the proposal being discussed, the underlying land would be sold to a third party, and L&L would team up with an equity partner to buy the leasehold interest. L&L is actively canvassing for a partner.

The J.P. Morgan partnership has changed tack a couple of times. It initially sought to refinance the Financial District building early this year via Cushman & Wakefield. Then it shopped the property, saying it would entertain bids for anything ranging from a 49% stake to an outright sale. Along the way, the focus shifted to the possible bifurcation. That effort has been in the works for months, but has gained ground in the past few weeks, according to market pros.

A sale of the underlying land would reduce the amount of equity that L&L’s new partner would have to contribute. What’s more, core investors typically are willing to pay up for the land under Manhattan office buildings, so that could increase the amount fetched. The relative prices commanded by the land and the leasehold interest would depend on the terms of the ground lease to L&L and its new partner.

New York-based L&L has long managed the building for various partners. Beacon Capital, a Boston fund shop, entered the picture in 2011 when it bought out the 95% stake held by GE Pension Trust, which was then L&L’s partner. That deal valued the building at $316.8 million, or at $288/sf. J.P. Morgan acquired its 95% stake in 2013, with L&L and Beacon splitting the remaining 5% interest. That transaction valued the property at $500 million, or $475/sf. Beacon has since left the ownership group.

The 29-story building is about 90% occupied. In the spring, the marketing campaign highlighted the fact that the top two floors, which charge higher rents, were empty. The tenant roster includes Gucci, Harper Collins and Omnicom Media. Nobu Downtown opened a 12,500-sf street-level restaurant last year. In addition to a base rent, Nobu pays a percentage of the restaurant’s sales.

The property has had $100 million of renovations in recent years. The interior is reputed to contain more marble than any other building in the city — thanks to the massive columns in its lobby.

The landmarked property was developed between 1916 and 1922 as AT&T’s headquarters. It is on the west side of Broadway, filling the block from Dey to Fulton Streets. It’s across from the Fulton Center transit hub and two blocks east of the World Trade Center.