SL Green to Shell Out $193M for Manhattan’s 600 Lexington

By Barbra Murray, Contributing Editor

SL Green Realty Corp. is about to pump up its enviable Manhattan office portfolio with the addition of the 303,500-square-foot tower at 600 Lexington Ave. The New York City-based REIT has just signed an agreement to acquire the Class A property from a joint venture spearheaded by Houston-based Hines U.S. Core Office Fund for $193 million, including the assumption of existing debt of approximately $50 million.

It’s not one of those highly anticipated “fire sale” deals that never quite materialized in the commercial real estate market, but it is still a good buy. “We’re definitely getting it at a price below replacement cost,” Andrew Mathias, SL Green president & chief investment officer, told CPE. “It was built in 1985, so for New York City, it’s a pretty young building, it’s in a spectacular location and it has great floor plates for smaller tenants, which is important in New York City.” Other recent transactions provide even greater perspective. “We’re buying the building at $636 per square foot; the Drake Hotel site just sold for $550 per square foot–and that was just land.”

The $50 million debt attached to 600 Lexington comes in the form of a 5.74 percent interest-only loan scheduled to mature in March 2014. For its part, the Hines-led joint venture did not lose its shirt. The partnership acquired the office asset for $91.6 million in 2004.

Currently, 600 Lexington is 93.6 percent leased to a roster of predominantly boutique tenants occupying full floors. In addition to the benefits of significant steady cash flow, the building offers another upside: Approximately 54 percent of its leases are due to expire over the next three years, which should allow SL Green to sign new deals at–barring some unanticipated disaster in the market–higher rental rates.

SL Green anticipates snapping up more prime Manhattan office properties in the near future, with the expectation of paying reasonable, but not bargain-basement, prices. Distressed assets provide the best opportunities for good deals, but Manhattan’s pool of distressed properties up for grabs is smaller than that of many other major metropolitan cities. “We don’t expect a rash of distressed properties–there’s too much foreign and domestic capital eager to deploy financing into Manhattan real estate,” Mathias said. “So we’re looking at everything in New York City.” That would include two other buildings currently up for sale: 125 Park Ave. and 340 Madison Ave.