Edge, HAIL Invest $254.8M for 49 Percent Stake in 1540 Broadway

November 9, 2010
By Barbra Murray, Contributing Editor

Edge Fund Advisors and HSBC Alternative Investments Limited have become the proud new owners of a 49 percent ownership interest in the premier Manhattan office building at 1540 Broadway. Acting on behalf of an exclusive syndicate of HSBC Private Banking Clients, the team paid CB Richard Ellis Investors’ CB Richard Ellis Strategic Partners Value 5 fund approximately $254.8 million to become a partner in the 907,000 square-foot property.

Also known as the Bertelsmann Building, 1540 Broadway stands 42 stories tall in the heart of Times Square in Midtown Manhattan. In addition to a coveted location and state-of-the-art accommodations, the property also stands out for its ground-level retail space owned by Vornado Realty Trust and occupied by Disney, which just opened its largest U.S. store in a 24,400 square-foot space today.

New York City’s office market may not have fully recovered, but it is as hot as a habanero pepper in the eyes of investors with well-padded pockets, so Edge and HAIL wasted little time making its bid for the office building. “We entered into negotiations early on and we were aggressive about due diligence and making it work,” Mark R. Keller, CEO of Edge, told CPE.

It seems investors had been using the office tower to play a game of hot potato before CBRE Investors had acquired it in March 2009. In 2007, Blackstone Group came into possession of 1540 Broadway when it bought out Equity Office Properties Trust for $39 billion. Immediately, Blackstone put part of the portfolio–including 1540 Broadway–on the market. Macklowe Properties became the building’s next owner when it acquired it for $830 million as part of a larger EOP portfolio purchase from Blackstone the same year. But in 2008, Deutsche Bank seized the asset from Macklowe and in 2009, the lender wrapped up a deal for CBRE Investors to buy it for $355 million.

Once CBRE Investors was in the driver’s seat, 1540 Broadway underwent a capital improvement program that increased its trophy level status and resulted in a jump in occupancy from 78.1 percent to 85.4 percent in the midst of a challenging real estate climate. As the Manhattan office market began to get back on its feet, CBRE Investors decided to put a non-controlling interest in 1540 Broadway up for sale in order to, as the company noted in a press release, “realize a portion of the investment’s appreciation for the benefit of the Fund’s investors.”

With Edge and HAIL onboard as co-owners with CBRE Investors, which will continue to serve as property manager and operator, plans for 1540 Broadway will remain the same. “We see eye to eye,” Keller said. Lease up is the order of the day. CBRE Investors’ upgrade program has left the property with three floors of top-of-the-line office space that is primed for build out. “It’s some of the finest vacancy in New York,” he added. “It is a great time to get it leased up and we’re very confident. It’s an opportunity for the building to add to its great roster of tenants.” That roster includes the likes of Viacom International Inc., law firm Pillsbury Winthrop Shaw Pittman L.L.P. and the Xinhua News Agency. “As the New York economy starts to tighten up over the next year, we’ll see full occupancy. New York acts much quicker than economists think. It doesn’t take a lot of movement to be back at 5 percent vacancy. And right now, the vacancy for top-tier assets is very low.”

It is not just the change in the market or the quality of the asset that Keller expects will help continue to push up occupancy at 1540 Broadway, it is CBRE Investors’ ongoing presence. “With good, strong ownership and consistent management, they’re reestablishing tenant relationships. The building is primed to be leased–it’s a phenomenal property in a phenomenal location, there’s just a little bit of finishing to be done and that is why we joined them, to help get the property to the finish line.”