1540 Broadway Deal a Manhattan Rarity

With big property trades as rare hen’s teeth in Manhattan these days, the sale of the office portion of 1540 Broadway in Midtown for a heavily discounted price–rumored at $355 million–is sending ripples through the city’s investment market. Disclosed by CB Richard Ellis Investors, which made the purchase on behalf of a commingled international fund, the sale is one of only four significant Manhattan office trades confirmed so far this year. Some $775 million in office assets have change hands so far in 2009, about half the $1.6 billion volume tallied during the same period in 2008, according to Real Capital Analytics Inc. Only one other office sale of comparable size to the 1540 Broadway deal is believed to have closed in 2009–Sotheby’s estimated $370 million repurchase of its headquarters building at 1334 York Ave. The auction house bought back the building from an affiliate of RFR Holding Corp. only six years into a projected 20-year sale-leaseback deal. And Real Capital Analytics reports that Murray Hill Properties is under contract to buy 485 Lexington Ave., a 914,800-square-foot Midtown Manhattan office tower, for $550 million. CB Richard Ellis Investors acquired the 905,500-square-foot office condominium interest in 1540 Broadway last week for a fund raised from institutional investors in the United States, Europe and the Middle East. Although CBRE did not disclose the purchase price, local sources agree on the estimated $355 million figure. If those figures are accurate, and 1540 Broadway traded for the widely rumored 6 percent cap rate, the deal could bring some comfort to Manhattan investment market players, speculated Nat Rockett, a managing director for Jones Lang LaSalle Inc.’s capital markets group. Assuming that the property’s in-place income is about 200 basis points more than the buyers’ cost of debt, and the building’s 20 percent vacancy offers significant upside, Rockett explained, “A lot of people would say that’s a traditional real estate deal.” The transaction reflects the state of Manhattan’s once high-flying investment market in other ways. At a price of $355 million, 1540 Broadway would have traded at a significant discount to its second most recent sale in 2006. That year, Equity Office Properties Trust bought the office portion of the building from $525 million from a joint venture of Paramount Group Inc. and Principal Real Estate Investors. In a separate $260 million transaction closing at the same time, Vornado Realty Trust bought the building’s 152,0000-square-foot retail portion. The deal is also the latest fallout from Macklowe Properties’ historic but ill-fated $7 billion acquisition of a Manhattan office tower portfolio. Macklowe bought the office portion of 1540 Broadway from Equity Office in early 2007. Unable to refinance its short-term debt, Macklowe was forced to turn over the properties to Deutsche bank, one of its creditors. After selling 1540 Broadway to CBRE Investors, the bank has now offloaded all but one of the former Macklowe properties, Worldwide Plaza, a 1.8-million-square-foot office complex on Eight Ave. and 50th St.