Preferred Equity Mulled for NY Office Deal
Savanna is quietly talking to potential equity partners about backing its pending $435 million purchase of a Midtown Manhattan office tower, which went under contract before the pandemic.
The New York fund shop agreed in February to buy the 513,000-square-foot building, at 1375 Broadway, and put down a nonrefundable deposit sources pegged at roughly $35 million. About a month later, New York City shut down most commercial buildings to stem the spread of the coronavirus.
Amid the shifting landscape, Savanna has tapped Cushman & Wakefield to reach out to potential partners about a preferred-equity investment. Some market pros said Savanna would have trouble closing the deal without additional capital, given that debt markets remain largely frozen. A preferred-equity infusion could help it get over the finish line.
Others said the deal remains on track to close this summer, giving Savanna ample time to line up debt, assuming the capital markets begin to thaw.
Savanna, which declined to comment, has agreed to buy the 27-story building from New York-based Westbrook Partners at a valuation of $848/sf. Westbrook had acquired the property from Savanna in 2015 for $310 million, or $604/sf, and hired Cushman last year to sell it.
As previously reported by sister publication Commercial Mortgage Alert, the brokerage is also soliciting proposals for $323 million of floating-rate debt. The loan would have a total term of six years and would include a future-funding component of about $34 million for renovations and leasing expenses.
Savanna first bought the building in 2010 for $135 million, or $265/sf. At the time, New York was still feeling the effects of the Great Recession, and the per-foot price was among the lowest for a Midtown office trade that year. But Savanna invested in renovations to the lobby, storefronts and facade, which helped boost occupancy and rents. Westbrook subsequently made additional improvements.
The building was 98.4% leased when it went on the market late last year, according to marketing materials. The largest tenant, accounting firm Anchin, occupies 120,000 sf on a lease that expires in 2023. Other large tenants include Crossix (53,000 sf) and Tarte Cosmetics (38,000 sf).
The property was developed in the early 1900s by Abraham Lefcourt, who constructed a number of Art Deco buildings in the city.